News/Events

Making the most of your retirement pension fund [5th November 07]

Are you about to buy an annuity with your pension fund? Retirement heralds the single largest investment decision many people will ever make. Converting a pension fund built up over a working life into an income stream is a huge step people can’t afford to get wrong.

Firstly, don’t forget to shop around and take advantage of what is known as the ‘Open Market Option’ This allows your IFA to get the best rate in the market and I have found very few cases where the existing provider offers the best terms unless, of course, there are built in guaranteed rates commonly found under old retirement annuity policies, that have to be taken into account. Only last week, I managed to increase a client’s pension from £35,650 to £37,360, he was delighted.

Also you must consider “enhanced annuities” which are arranged according to your medical or lifestyle situation. Medical situations include high blood pressure, cholesterol or diabetes as well as more serious or uncommon ailments and a lifestyle example would be smoking. Companies recognise these factors could affect your life expectancy and may offer a higher value annuity.

Secondly, as an annuity locks you into a guaranteed income for life, it might be worth considering other options that could be more flexible or offer some more attractive terms. For example, there are;

1. A flexible annuity has been introduced by a couple of companies where you only buy the annuity for 5 years and then review your position.

2. Circumstances do change and Income Drawdown – unsecured pension – gives the opportunity to vary the annual income and provides better death benefits. However, if you delay taking your annuity, rates in the future may be lower than today.

3. One major company has devised a plan with a unique optional guaranteed income for life and the potential to lock into up to the first 10% of the increase in your fund value during the good years with protection during the bad ones.

4. There are Self Invested Pension Plans (SIPPS) that give you wider investment opportunities whilst being able to take advantage of both unsecured Pensions and phased retirement.   SIPPs should only be for client's who have the knowledge and experience to self invest and fully understand the risks and SIPPs often have higher charges.

Please remember, if you are in an Income Drawdown contract already where performance and charges are critical, bear in mind you are no longer tied into the existing provider and can now transfer to a new one. More recent contracts offer a better and wider range of investment funds including external fund manager and more importantly lower charges. Make sure you review your plan now.

I am pleased to say that the Pension area is becoming more competitive, giving greater flexibility but more importantly driving costs down. More innovative plans are on the horizon and this market is getting bigger.

Needless to say there can be risks involved in arranging an alternative plan to an annuity. Drawdown or taking your pension benefits early, including tax free cash sum, can reduce the annuity or income available in the future and there are also investment risks associated with Drawdown and it is therefore not suitable for everyone. So make sure you contact your IFA and one who specialises in retirement Pensions Planning.

This article was written by Langtons - Published in the Western Morning News, This is Money, 5th November 2007