Pension Plans and Annuities
See also:
Pension Plans and Annuities Top Tips
Pension Plans and Annuities Client Library
The pensions world continues to change, improving ways you can take pension benefits. You will undoubtedly have seen the major changes- abolishing the age for purchasing annuities at 75, as well as the raising of the state retirement age.
Never before has the need for quality pension advice been more profound.
WAYS TO TAKE PENSION BENEFITS
Many consumers are still unaware of the existence of options such as impaired life, postcode, variable, investment linked and fixed term annuities, let alone know they are either suitable or eligible for them.
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
Your Pension-It's time to choose
When you decide to take pension benefits, for so long the only option was to 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 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 2011/12 (SLA £1,800,000) if the fund is £18,000 or below, 25% can be taken as tax free cash (£4500) 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.
DRAWDOWN PLANS
Often referred to as unsecured income plans, there are now two sorts of drawdown plans. This allows you access to your tax free lump sum, and at the same time, you can ( but you don't have to) draw an income whilst leaving the fund invested for the future.
There are two kinds:
* Capped Drawdown, where there are limits on the income you can take, and
* Flexible Drawdown, where there are no limits provided you can show you have other income of a certain level called the Minimum Income Requirement.
Drawdown plans are complicated contracts which have many advantages over other schemes but should only be considered once all the pros and cons have been fully understood.
HYBRID ALTERNATIVE OR THIRDWAY 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.
These products offer alternatives to the more traditional methods of taking benefits. They can pay a regular income and offer guarantees of either investment growth, or the amount of pension fund you have left to buy an annuity later on. They vary in what they are called, the guarantees they offer, and the charges they make to cover the guarantees.