So you have saved all these years for this moment. How many years have you saved?
15? 20? 25? more?
So how long should you spend trying to figure out how best to draw your pension benefits?
Should you accept what your pension provider has offered you?
Do you know what it will mean for you and your family if you just tick that box and post it back?
Do you realise how beneficial it would be to spend an hour or 2 with a financial planner to make sure you make the right decision?
Most of us are nice people who are doing this work to help people achieve their goals in life and lead the lifestyle they desire.
So what are your options? and what might be best for you?
Take the annuity offered by your current provider
- No hassle
- No need to pay an adviser
- Will more than likely give you a guaranteed income for the rest of your life
- Do you understand what you are getting? Probably not!
- Are you getting the best deal? More than likely not!
- Does what you are being offered give you the lifestyle you desire? Maybe…..Maybe not!
- Does it provide sufficient income for your family when you die?
- What are the implication of dying early?
Why consult a financial planner?
- A financial planner will make sure you are getting the best deal even taking into account any adviser fees
- They will be able to educate you in exactly what you are getting.
- Knowledge is wealth
- Your family will understand what they will receive in the event of your death
- You will have PEACE OF MIND!
Open Market Option Annuity
Well what does that mean I hear you say?
It means that you get the best deal on a guaranteed income for life for your circumstances. Every provider is quoted and also takes into account your health so if you are in ill health or are a smoker, you will get a better deal. Even high blood pressure can you get you a better annuity rate.
- Guaranteed income for life
- If you smoke or are in poor health you can get an enhanced rate
- Income is not affected by investment performance of market volatility
- If annuity rates fall your income will not be affected
- Once you are in, thats it, there is no changing it
- Death benefits can be poor
- Your level of income is limited
- No flexibility
- If you choose level income the value will be eroded by inflation
Investment linked annuities
An investment linked annuity is just that. It is an annuity, but your capital remains invested and this investment can go up or down. So it is not guaranteed, but may help protect your income against inflation if performance is good.
- Once income is chosen it will be subject to a minimum which is fixed for life
- If the underlying investment performs well your income could increase
- You will offered an income range by the provider
- You may be able to change the level of income in the future
- If investment performance is poor you income could decrease
- Death benefit may be poor
- You may not be able to take advantage of the new flexible rules coming in from April 2015
Income Drawdown is where your money stays invested and you draw money from the fund. Currently you set an income level from Nil to the maximum which currently is 150% of GAD (Government Actuary Department). This GAD rate is usually higher than you would achieve on an annuity. However with a warning that the more income you take the higher the required performance to keep the same level of income. This income is then reviewed every 3 years up to age 75 then annually thereafter.
- You can take your tax free cash without having to take any income
- You can adjust your income to reflect your lifestyle
- After April 2015 you will have no limits on how much you can draw from your pension.
- You can choose where you invest your funds
- You can continue to contribute
- On death a lump sum will be paid currently subject to 55% tax however this will be reduced to no tax after April 2015 up to age 75. After 75 it will be taxed at your beneficiaries income tax rate.
- Poor performance could erode your capital and lead to less income
- High levels of income may not be sustainable
- You run the risk of running out of money
- Charges can be high such as initial charge from the provider, initial adviser charges, annual provider and adviser charges
- Annuity rates may get worse
So may choices and so complex. Advisors like myself have to study to become qualified to give advice in this area. Some advisors must obtain pre-approval before they can give advice even when they become qualified. I believe that this is the most important time of someones life to get advice. It can mean such as difference in income. If you take for example someone who just goes for what their own pension provider offers as opposed to going for whole of market option annuity. There can be a significant difference here. Even if you include an advisers fee it can still get you around 20-30% more income. So my advice is to seek advice especially in this area. If you get advice from an Independent adviser you can be sure you are getting the best deal.
Call us on 028 2544 6120 to discuss your pension plan or use the contact form by clicking here.