Can you avoid buying a pension annuity, even with best UK annuity rates? Let’s say you are approaching retirement age and are unclear about your various options. Most people seem to either buy an annuity, though some do go for income drawdown (now unsecured pension) but there are other alternatives, a flexible annuity or a third way annuity. This is an alternative available to those approaching retirement but in the UK these style of annuities are pretty new to the market. In fact, Living Time is the only company currently offering such annuities in the UK. However, this could change soon, with LV= and Aviva seriously looking into the sector.
Living Time essentially offer retirees a halfway house somewhere between the traditional retirement options of lifetime pension annuities and income drawdown plans, and removes the reliance of finding the best UK annuity rates for that one-off purchase. When retirees initially want to access their pension, they can take up to 25% of their fund as a lump sum in cash. They then must either use the rest of the fund to buy an annuity or opt for income drawdown instead. By opting for an annuity income, retirees get the security of an income for life but it is fixed, and retirees need to be able to financially cope if their situation alters.
The other route mentioned, income drawdown, allows retirees to keep their pension fund invested and draw an income from it, hoping that any investment gains they receive exceed the amount they are taking out. The issue here is that the pension fund could suffer severe erosion if it is invested in the stockmarket, circumstances we have unfortunately witnessed recently. The problem with taking a pension annuity early on, is that they are influenced by a retirees life expectancy and a non-smoking, healthy, 68-year-old will get a lower return than an older retiree with worse health.
According to the Office of National Sudies (ONS), the average 65-year-old has a life expectancy of around 15-20 years but they only have a disability-free life expectancy of some 10-10 1/2 years. So, Living Time is trying to offer retirees a suitable alternative to pension annuities and income drawdown. Dave Harris, from Living Time, states that their plans are designed to give people the chance to test drive their retirement, and they are especially suitable for those retirees at the early stage of retirement and of good health. With their 75 Plan, retirees can use their pension fund to buy a regular income until they reach age 75, when they get a pre-agreed lump sum, which they can then use to buy the most suitable type of pension annuity for them, as everyone has to purchase an annuity at this time.
