There are alternatives to buying a pension annuity at retirement. You could choose to do nothing and simply delay your annuity purchase. In doing this you might hope that your pension fund could recover in value, and that pension annuity rates might increase.
However, the issues to consider here are that it might take a long while for a recovery in the value of your pension fund, and pension annuity rates might not increase over the short term. You could be better off biting the bullet and purchase that pension annuity now.
There are some retirement contracts out there that allow you to start taking an income now, with the flexibility of leaving the balance of your fund invested in the hope of some recovery in value over time. Possibly the best of both worlds in the financial climate we are currently witnessing, and these alternatives save you having to spend your no doubt depleted pension fund on a pension annuity and locking into one annuity rate forever.
These are examples of actions you could take. You could take your tax free cash now, and leave the balance of your fund invested, therefore delaying buying your pension annuity until a later date. There are contracts which allow you to do this and they will give you the opportunity of some recovery over time in your fund value. If you have a larger pension pot, say, over £100,000, an income drawdown plan might be better for you. An income can be taken from the outset, and the remaining fund can be left invested in the anticipation of some recovery in its value.
Or, you could go for a phased drawdown plan or phased retirement. These plans were primarily introduced for those people who wished to retire gradually and literally ‘phase’ the taking of their retirement benefits. You could use a combination of an income drawdown plan and tax-free cash to provide an income or purchase a series of pension annuities.
The choices you make about your retirement planning are very important, and specialist advice is crucial to your financial well being in retirement. Should you make the wrong decisions about buying that annuity you could lose out on thousands of pounds worth of retirement income. However, make the right decisions about that annuity and you could be thousands and thousands of pounds better off.
