In the past when looking to take benefits from pensions the typical method was to take the maximum tax-free lump sum and purchase a lifetime annuity with the remaining fund to provide an income for life.
With the ongoing and many changes in the financial services industry we have seen new products and increased options in the marketplace when consumers reach retirement age. This has enhanced benefits and given added flexibility however with this has come increased confusion for consumers.
For a lot of people choosing the most appropriate retirement option is one of the biggest financial decisions they will make so it’s important the right option is chosen and the most is made out of their money.
The recent headlines have been around the concerns of those who are purchasing annuities. The main issues are that many consumers are still not taking advice or not shopping around for the best deal especially for those in ill health, who would qualify for enhanced annuity rates and therefore higher income.
The other issues have been regarding those with smaller pots and charges and commissions being taken from brokers without giving advice. In a lot of cases consumers have been paying more in charges and receiving less income than those consumers who have actually taken and paid for advice.
So here are some of the alternatives to purchasing a lifetime annuity:
- Leaving the pension invested and use other assets first
- Fixed or short term annuity
- Income Drawdown
- Phased Drawdown
- Flexible Drawdown
- Asset backed annuity
So which is the best option? Well this will depend on your circumstances and a number of factors that need to be considered which include:
- immediate income and capital requirements
- Spouse or dependants requirements
- how much flexibility you need
- Health and spouse’s health
- Age of you and spouse
- Willingness to take risk with the money
- Additional assets or income receiving or expecting
- Whether you want to leave an Inheritance
- Size of fund
Therefore annuities certainly have a place when choosing your retirement option and are not all bad. Like all financial decisions careful thought needs to be taken and all the factors and options need to be considered before shopping around for the best deal or taking advice.
As always, whether you want to know what the options are and the most appropriate and best route for you then seek the help of a professional adviser who is transparent in their advice fees and charges.
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