WHAT DO I LOOK FOR WHEN TAKING AN INCOME IN RETIREMENT?
Your financial decisions at retirement will have an impact on the rest of your life, so make sure you consider your options carefully.
It’s a good idea to seek guidance or advice to understand your options at retirement. You have access to the Government’s free impartial Pension Wise service provided through Citizen’s Advice or The Pensions Advisory Service. This guidance can be accessed on the internet, by telephone or face to face.
What do I look for when buying a fixed income (annuity)?
The amount of income you receive depends on the type of fixed income you choose, how much you have in your pot and which features you choose to add. Remember, the more options you add, the lower the starting income you’ll get.
You’ll also need to take a close look at your financial priorities. This will help you decide what type of fixed income is right for you.
Here’s what you need to do:
Review your pension
Some pensions have guaranteed annuity options which may give you more income than available on the open market.
Review your financial priorities.
This will help you decide what type of fixed income is right for you.
Decide what options you want to add
Example:
• Do you want an income fixed for you, or fixed for two?
• Do you smoke or are you in poor health? You could qualify for a higher income.
• Do you want guaranteed payments for a set period of time?
Charges
Always review the charges carefully, and make sure your provider explains these to you in detail.
Shop around
Check if another provider will offer you a better deal. You don’t have to buy your annuity from the company that your pension plan is invested with. The Open Market Option allows you to use your pension plan to buy an annuity from any provider, and you might get a higher income.
Once you set up your annuity, you won’t be able to change annuity providers or add different options. You won’t be able to make cash withdrawals or make payments, and if you haven’t chosen fixed for two then you won’t be able to leave an income to your partner when you die. There are some helpful tools out there to help you make the right choice.
What do I look for when choosing a flexible income?
Not all providers offer flexible income solutions. You may need to move product or provider, so make sure you shop around.
Here are the key things you should look for if you choose flexible income:
Review your pension provider
Make sure you can take your income out whenever you like. Some providers only let you make withdrawals once a month.
Consider your investment choice
Make sure your provider offers appropriate investments for flexible income to give your pension pot the best opportunity of lasting as long as you need it to.
Check your charges
You need to understand the charges. Make sure your provider explains these to you in detail so that you get the best value for your money.
If you’re not comfortable choosing your own investments, you could think about taking a fixed, guaranteed income instead (annuity).
Remember that there is the risk of your investments performing poorly and not being able to sustain the amount of income you need.
What do I need to look for if I choose the cash option?
Here’s what you need to do before you choose the cash option: Decide how much you want to take and what you want to do with the money
Taking cash now means you may have less for later on. Review your financial priorities and only take the money if you need it.
Think carefully about the implications
Once you take money from your pot, it won’t have the same tax advantages, and, if you take too much, you could move into a higher rate tax band.
Check what your plan allows
Some providers won’t allow cash withdrawals or only let you make withdrawals once a month. You may need to change product.
What do I need to look for if I choose to leave my pension for now?
Flexibility
When you want to take income or a cash withdrawal, make sure you can do so whenever you like – some providers only let you make withdrawals once a month.
Investments
Look for investments specially designed for this stage of your life. Make sure you understand the investment risk associated with keeping your pot invested.
Charges
Review the charges carefully, and make sure your provider explains these to you in detail.
Tax rules and legislation can change. Any information given is based on our understanding of law and current HM Revenue & Customs practice as of April 2016.
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At Independent Financial Solutions, our highly skilled adviser uses state-of-the-art technology, enabling us to meet all of our clients' financial needs, both personally and corporately, and achieve their objectives in the most cost-effective way.
This is important because there are literally thousands of different options available, and our clients want to be certain that any investment, pension, healthcare or insurance recommendations that we present for consideration are the most appropriate to their individual needs. In other words, recommendations that are totally in our clients' interests – not someone else’s.
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