Specialist Independent Advisers based in East Anglia

Lovewell Blake Financial Planning Limited

Retirement Options

Annuities – Making your pension ‘pot’ go further

Advertisements often tell us that we need to get ready and start saving for our retirement. What we hear much less about is the next stage - the time when we reach our retirement age and have to figure out how to make our savings last as long as they need to.  How, for instance, to compare the different offers for converting our pension ‘pot’ into an annual lifetime income?

Of course, it would be helpful to be more certain as to how long our retirement will last.  With no such magic formula to help come up with the answers, the situation is different facing each individual and couple as they approach retirement. So, the more you know about what you have and how to manage it, then the better off you will be.

Our advisers will help you make the right decisions on how best to make your savings last, no matter how long you live.

Income drawdown – Becoming a more popular choice

Unsecured Pension or Income drawdown is an option available under money purchase pension schemes which allows a pension to be paid without having to use the entire fund to purchase a lifetime annuity.

The fund, less any tax free lump sum taken, remains invested and the pensioner simply draws an income directly from it. This means that the fund can be managed and will benefit from any investment growth. Of course, as values can fall, investments need to be monitored to make sure that the required income will continue to be met in the future.

To avoid the fund being used up too quickly, HMRC limit the amount of income that can be taken under income drawdown. The individual's income limit must be regularly reviewed. Because of the limit, this type of drawdown is referred to as 'capped' drawdown.

However, for those who can show they meet the minimum income requirement (i.e. Scheme Pension of at least £20,000 per annum), HMRC allow their fund to be designated as flexible drawdown. This allows the member to draw as much as they want from the fund subject to taxation without any limits or reviews, including taking it all out completely.