Your Financial Architect’s Guide to Unsecured Pensions
- Income Drawdown.
Drawing down all the options
When it comes to thinking about your retirement, the low
interest rate environment, along with the past five or six
years of stock market turmoil, may have you concerned about
what you will get. Under normal circumstances you would look
at your pension pot, compare a few annuity rates and choose
the best one – but what happens when none of them seem
to offer enough?
The good news is, there are now a number of options for you
to consider in order to maximise your prospects. It took a
very long time to build it up so you should be given the chance
to make the most of it.
One of the options available is known as income drawdown.
Rather than buy one of the annuities on offer right now, you
can defer your decision – but in the meantime, draw
anything between 0% and 120% of the annuity you would have
purchased direct from your pension fund. The rest stays invested.
Indeed, following the rule changes in April this year, you
don’t even have to make the decision by age 75 (but
you would be advised to do so in most circumstances). You
can keep going as long as you like.
The main advantage of this option is the flexibility it provides.
Subject to the maximum (which is reviewed at least every 5
years to ensure the pension fund does not run out!), you can
take whatever amount of income you need.
So, if you want to continue working, you could initially
draw a smaller pension but increase the amount slowly until
you want to give up completely. Or, you could get access to
your tax-free lump sum but leave taking any income until further
down the line. Alternatively, if you have a partner you wish
to provide for, taking less income now can help leave more
for them if the worse should happen. And whilst the money
remains invested, you can continue to have some control over
how.
There are drawbacks. On buying an annuity, the charges for
pension provision normally stop. However, with income drawdown
the charges continue because the fund remains invested. In
addition, there are administration fees for carrying out regular
reviews. These can mount up and need to be considered relative
to the potential gains.
Whatever your situation, if you are worried about income
in retirement, you should find out all your options. Take
the time to speak to your financial architect at Independent
Options.
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