Annuity Options

When you reach retirement there are a great many options available to you which are affected by your own personal circumstances. The purchase of an annuity is only one of these but because it is a one off lifetime decision it is perhaps the most important.

Because of the of the number of options available it is important that you select those that meet your circumstances. The huge difference between the level pension annuity rates offered by the various annuity providers really does underline the fact that you should use the Open Market Option (OMO).

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At Think Annuity we have many years of experience in dealing with the options appropriate to individuals when they reach retirement. If you would like to discuss the options available to you and research the market to obtain the best possible rate then we are really happy to help.

Annuity Alternatives

Other retirement options - You do not have to purchase an annuity to pay your retirement income.
The provision of your retirement income does not have be by annuity purchase albeit the most popular and appropriate for most people. There are other options but we recommend you seek Financial Advice should you consider any of them.

By contacting Think Annuity we will automatically consider all options available to you and reach agreement on the most appropriate for you.

Unsecured Pensions (USP)

There are two types of unsecured pensions available through defined contribution schemes:-

• Income Withdrawal and
• Short Term Annuity

Income Withdrawal

Income Withdrawal (often referred to as income drawdown) is intended to allow those with pension benefits to defer buying an annuity at retirement and instead make withdrawals directly from the fund.

The important characteristics are summarised below.

Before commencing income withdrawal you have to decide how much tax free cash you require from the fund. Normally the maximum is 25% but should you decide on a lower amount it is not possible to ask for the balance later.

One of the most attractive features of income drawdown is that it allows you to retain control of your investments. You continue to manage and control your pension fund and make all the investment decisions. Providing the fund is not depleted by excessive income withdrawals or poor investment performance, it may be possible to increase your income later in life. However, if you get it wrong your income may be reduced. There are therefore greater risks than the traditional annuity.

Income Withdrawal can offer better death benefits than an annuity, particularly useful if there are health issues.

The level of income is subject to a maximum but no minimum. The maximum is based on 120% of a rate set by the Government Actuaries department. This allows considerable income flexibility.

The advantages are therefore centered on the extra flexibility income withdrawal provides by delaying the purchase of an annuity. The disadvantages are therefore the opposite. By leaving the fund invested there is a risk the investment will fall. Also annuity rates may fall if interest rates (long term gilt yields) fall. Both will result in a future loss of income. A full understanding of the risks is essential before making a decision.

Short Term Annuity

Short Term Annuities are less popular than income withdrawal. After withdrawing the tax free cash the bulk of the pension funds remains invested with a portion used to buy a temporary annuity. There is a limit to the annuity and the term is restricted to five years. The objective is for the funds to increase over the five year term to maintain future income. The risks are once again based on fund performance and future annuity rates.

Phased Retirement

The basic principle of Phased Retirement is once again to provide greater flexibility on when and how income is taken. Pension plans are usually made up of a number of segments. Phased Retirement allows for these segments to be cashed in at different times. Income is provided by cashing in a desired number of segments, taking the tax free cash and purchasing an annuity with the balance. This can be very tax efficient as part of the income is tax free. Phased Retirement usually involves higher costs as detailed planning is required at every stage. The risks are similar to Income Withdrawal, in that by leaving funds invested there is an investment risk and that annuity rates will fall in the future. Equally, the converse is true. One of the main drawbacks of phased retirement is that the member loses the benefit of having the tax free cash in one sum. If cash is a priority then phased retirement may not be suitable.

It is possible to combine Income Withdrawal and Phased Retirement to avoid the need to purchase annuities. This is more complicated and requires careful planning.

Alternatively Secured Pension

Alternatively Secured Pension is a variation of Unsecured Pension but with restricted death benefits. It is for members reaching age 75 who have not secured the benefits from their pension policy. The income levels available differ from that of the unsecured pension contract.

Third Way Annuities

Historically you have had the choice of guaranteeing your income with an annuity or opting for the flexibility of Unsecured Pension. Third Way Annuities aim to fill the gap between these two products by offering a guarantee whilst still offering an element of control over the fund value. The products available differ from provider to provider and you should speak to your financial adviser for more information.

Why Use Think Annuity

Choosing the right annuity isn't easy, at Think Annuity we're leading the way in making it simple.

  • We can potentially get you more income than your current provider
  • We provide a hassle free and no obligation personalised quotation service
  • We'll assist you through the maze of retirement options
  • We compare all the leading providers annuity rates
  • We facilitate the best Independent Financial Advice

Simply go to our quote form, answer all the straight forward questions.

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