Pension Plans and Annuities
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Pension Plans and Annuities Top Tips
Pension Plans and Annuities Client Library
PENSIONS
Unlock your pension for tax free cash
One of the most common requests we get is " I want to cash in my pension" . You will also be aware of adverts in national newspapers on unlocking your pension or pension release.
Many people have earmarked their tax free lump sum to pay off the mortgage, pay for a wedding, or go on that once in a lifetime holiday.
There are many reasons why clients want to do it- and for some of our high rate taxpaying clients, we will show them why there are good tax planning reasons for doing so. But remember that there are always disadvantages as well as advantages of doing so. We will tell both sides of the story.
ANNUITIES
Its time to choose-just the facts about your pension
When you decide to take pension benefits you can buy an income for life - known as an annuity.
Buying an annuity is the ultimate decision – there will be no turning back – once purchased you will be guaranteed the terms offered at that time and you lose access to the funds accumulated.
In times gone by you would probably have taken the annuity offered by the company with whom the pension has built up. This will probably now be a poor decision as specialist annuity providers can offer far better rates than your existing provider.
With all pension plans, we first of all check to see whether your existing plan benefits from having a guaranteed annuity rate attached. Some companies, to enhance sales when the plan was first sold gave annuity guarantees which were based on interest and gilt rates prevalent at that time (Remember interest rates of 11 %?) Unfortunately for them rates have fallen dramatically, leaving them with a headache and leaving you with a rate, which will undoubtedly beat existing present day annuity rates.
CHECK OUT,FOR FREE,WHETHER YOUR ANNUITY CAN BE BEATEN AT annuities@youretirementstrategies.co.uk
There are many types of annuity depending on your personal needs. There are investment annuities when you are prepared to take income and hopefully a larger amount if it grows or ones where the income is known at the start where there are no risks involved
Companies can also provide what are called impaired annuities whereby, if the annuitant has suffered from previous ill health or is a smoker, the rates are better than for perfectly healthy applicants. LV, one of the specialist enhanced annuity providers, report that 150,000 people could increase their income in retirement. The UK enhanced annuity market has grown by 31.9% in 2008 ( *Source 27th March 2009 IFA On-Line)
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To give you an illustration, take Doris Hill, for example, a 67 year old single female from Manchester who is a smoker. Doris had a fund of £50,000 after tax-free cash. The standard annuity she was offered was worth £3,617pa but a Partnership Smoker Annuity gave her £4,373.11pa. That's an increase of £756.01 every year or 21 % *Source Partnership Group of Companies |
TRIVIALITY- RULES FOR SMALLER PENSIONS
Where an individual is aged over 60 (but less than 75) and their total funds from all pension schemes is less than 1% of the Standard Lifetime allowance (SLA) the entire fund can be taken as a lump sum. For example 2008/9 (SLA £1,650,000) if the fund is £16,500 or below, 25% can be taken as tax free cash (£4125) with the balance taken as cash but taxed as earned income.
PHASED RETIREMENT PLANS
These plans offer the choice of buying an annuity with part of the fund and leaving the balance to grow until such time as needed. This type of plan would suit someone who has decided to slow down rather than fully retire does not need to maximise his tax free cash and is prepared to leave the fund invested with the objective that it will grow to provide a higher annuity at a later date.
UNSECURED INCOME PLANS
Previously known and still often referred to as Drawdown Plans the applicant can take out all his tax free cash up front leaving the balance of the final invested for the future. Income can be deferred or taken.The actual amount which can take varies between two limits set by the Government Actuarial Department.
This is a complicated contract which has many advantages over other schemes but should only be considered once all the pros and cons have been fully understood.
Just the facts about income withdrawal -money made clear
AGE 75 REACHED – ALTERNATIVE SECURED PENSION (ASP)
The rules relating to pensions dictate that annuities should be purchased once the policy holder reaches the age of 75. However, with ASP people who have do not wish to purchase an annuity can continue to keep the money invested but must take income of between 55% and 90% of what an equivalent single life annuity should provide.
ASP is likely to be suitable for individuals who wish to vary income, have a substantial level of funds to place into the plan and wish to pass their fund values on to financial dependants or their chosen charity on death. It may also be suitable for individuals who are uncertain about their health and do not wish to commit to purchasing an annuity.
HYBRID ANNUITIES
The UK financial services industry has often looked abroad to other countries to copy best ideas. In addition foreign companies, eager to enter the UK market have introduced tried and tested schemes operated in the USA or other countries.
Canada Life, a leading North American company, through its UK subsidiary have introduced a hybrid scheme called The Annuities Growth Account involving temporary annuities whereby applicants can put off buying an annuity whilst in the meantime receive income from a term based annuity.
Living Time have introduced the Living Time contract which again is intended to allow people to defer taking any irrevocable decision on relevant income until the last possible moment, by buying a temporary annuity.
Lincoln Life have now brought out a plan called The Lincoln 12 Live Retirement Plan with income guarantee.
Met Life’s secured retirement option locks investor’s gains in every three years.
Hartford Life - Guaranteed Retirement Income Plan guarantees an income for life and growth is locked in each year up to 10%.
Aegon - 5 for life plan allows for an income level of 5% of the initial investment for life, and after the 10th anniversary, a guarantee of at least the original amount less any income received.
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