Retirement Options
There are many different types of retirement options available to you when you come to retire.
Annuity
Annuities convert your pension savings into an income. And is by far the most common option, although this is changing in light of the pension freedoms from April 2015.
Since April 2015 you can now withdraw as much of the money you want to that you’ve saved into your pension, once you reach 55. Be careful, it will be taxed as income.
An annuity is a financial product that enables you to convert your pension savings into a monthly or yearly retirement income for you to live on.
The amount you will get depends on things like how old you are: the younger you are when you retire, the less you get each year, whether you want your annuity to pay an income to your spouse or partner when you die.
It’s worth thinking about talking to a financial adviser about the best type of annuity and which company will pay you the highest income.
There are various types of annuities available, here are an example of a few:
- Fixed term annuity
- Fixed annuity
- Enhanced annuity
- Index linked annuity
- Investment linked annuity
Phased Retirement
Many people like to retire gradually, without giving up work altogether.
Phased retirement (or staggered vesting) is where you can take part of your pension and continue to work. It can offer a flexible approach to commencing and withdrawing pension benefits.
Staggered vesting can be made available to those who transfer from retirement annuities or some form of occupational scheme to a personal pension plan.
By allowing regular withdrawals from the pension fund, Phased Retirement plans achieve a level of flexibility. Your annual pension income is made up of tax free cash and an annuity or suitable drawdown arrangement. The balance of the fund then remains invested.
There are many other potentially complex issues to consider when using a phased approach to your retirement. Independent Financial Advice from an appropriately qualified adviser is essential.
Income Drawdown
Income drawdown is an alternative to buying an annuity, where you leave your pension invested and draw an income from it.
Since April 1995 you don’t have to use your pension pot to buy an annuity; there are alternative means of taking your retirement income. On reaching 55 you may now withdraw as much of the money as you wish to from the sum which you have saved into your pension.
You can use your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. Though the income you get will depend on the fund’s performance. It isn’t guaranteed income for life.
You can choose to take up to 25% (a quarter) of your pension pot as a tax free lump sum. You then move the rest into one or more funds that allow you to take an income at times to suit you. Most people use it to take a regular income. The income you receive may be adjusted periodically depending on the performance of your investments.
Risk involved with income drawdown is that it is not guaranteed for life: you will only be able to obtain an income so long as you have a pension pot.
THE VALUE OF INVESTMENTS AND THE INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
A PENSION IS A LONG TERM INVESTMENT; THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION