Probably the most important savings plan you will have for your life is your pension. This may be something that you have set up yourself or had as a benefit from your employer. It is therefore vitally important when you reach your planned retirement age that you received the best possible advice to ensure that you make the right choices. This truly is your life savings and could make the difference between living comfortably in your old age and having to struggle to make ends meet.
Consideration should be given to the level of income that you may require at various stages in your retirement, for example if you retire aged 65 you may wish to spend time traveling and enjoying your new found freedom from work, then as you get older your expectations for travel may curtail leaving you with a lower income required which may then peak in your later year should you require . Many of those reaching their planned retirement age may wish to continue in some form of employment and therefore could opt to phase their retirement and just turn on the income when it is required.
Most retirees will opt to take their pension income in the form of a standard annuity. You are able to take up to 25% of the pension funds as a tax free cash sum and then the balance of funds would be used to purchase an income for the rest of your life. Once the purchase of a standard annuity has been completed it cannot be altered and therefore could lack flexibility. You can however opt to include features such as a continuing benefit to a spouse or partner, guaranteed payments for 5 or 10 years should you die the pension will continue in payment.
You can also protect your future income against the effect of inflation by including an escalation option which can either be a fixed percentage or by Retail Price Index (RPI). The inclusion of any of the options detailed would have the effect of reducing the starting income on the annuity.
For someone with health problems and or some lifestyle choices like smoking, enhanced and impaired life annuities could be available. Very similar to a standard annuity and giving access to similar options, the rate is higher because of their health. Because certain medical conditions can have the effect of reducing your life expectancy the income you receive could be up to 40% higher. There is however a question that if your health is so poor should an annuity be the right option for you.
There are other types of annuity for consideration which include, investment-linked annuity, fixed-term annuity, and which profits annuities.
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