You have now decided to retire and have built up a respectable fund. What do you do? There are a number of options available.

There are now many different ways of taking benefits.

YOUR RETIREMENT OPTIONS

FSA guide to pensions - Annuities and other retirement options.

Annuities

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. However, we would 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.

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.

PHASED RETIREMNT 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.

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 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.

TRIVIALITY

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 2007/8 (SLA £1,500,000) if the fund is £15,000 or below, 25% can be taken as tax free cash (£3750) with the balance taken as cash but taxed as earned income.

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.

AIG – has 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.

Lincoln Life – have now brought out a plan called The Lincoln 12 Live Retirement Plan with income guarantee.