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Retirement Options
Why should I consider using an alternative to a Conventional Lifetime Annuity?
The main reason that people consider alternatives to Lifetime Annuities is the desire for either of the following features:
Continued investment - It may be advantageous to leave your retirement fund invested and draw a regular income. There are a number of reasons why this might be desirable – for example, if the fund grew in value at a greater rate than the income drawn then it might be possible to increase your pension in the future. Also, this method avoids the need to purchase a spouse’s pension at the outset and may therefore result in higher income being available to a dependent in the event of your death. There may also be tax advantages.
Lifetime Annuity purchase deferral - If you have an expectation that Annuity rates will rise in the future you may wish to avoid locking into a rate now. Should you expect your health to deteriorate you could qualify for enhanced terms.
Below you will find a quick overview of the main product categories available at retirement.
With Profit and Investment-Linked Annuities
Investment backed Annuities are designed to give you the opportunity to obtain an income that increases during your retirement. Unlike Lifetime Annuities, the income is linked to an underlying investment fund so these annuities carry ongoing investment risk. It is important to note that the income can go down as well as up.
Fixed Term Annuities
These products are very new to the market and are only offered by a few providers. They provide income for a fixed term of 3-10 years and then return some of the unused capital with or without investment growth. They are suitable to those that require a guaranteed minimum level of ongoing income and /or a guaranteed minimum fund value or death benefit.
Capped Income Drawdown
Capped income drawdown allows you to draw a taxable income each year, directly from your fund, leaving the remainder invested. The amount of income that can be taken is from nil to 100% of the equivalent single Life Annuity and is determined by rates set by the Government Actuaries Department (GAD). The limits are reviewed every 3 years up to age 75 and then annually thereafter. Its advantages include control in respect of ongoing investment and the timing of annuity purchase, income flexibility and improved death benefits. Although this may have many attractions, it carries investment risk and is not suitable for everyone.
Flexible Income Drawdown
This is a new option which was introduced in April 2011. It has all the benefits of Capped Income Drawdown whilst allowing income withdrawals above the Capped Drawdown limit as long as the individual has a minimum guaranteed gross lifetime income above £20000. The minimum guaranteed lifetime income can only be provided by State pensions, Scheme Pensions and Lifetime Conventional Annuities.
Important
These alternative products are far more complex than a Conventional Lifetime Annuity and therefore require full advice. For these reasons they can also be more costly to run.
Should you wish to explore any of the alternatives to conventional annuities we would be pleased to offer you independent financial advice.
Click here to complete the enquiry form.