When you come to retire you need to consider your retirement options. Here we outline six of your retirement options. First, a conventional annuity – this is the most common type of annuity. It will pay you a secure regular income for the rest of your life, and is applicable if you’re considered to be in good health. Annuity rates for a conventional annuity can vary by up to 20% between different annuity companies, and you could receive more retirement income if you live in a less wealthy part of the UK.
The next of the retirement options is an enhanced annuity – this will pay you a higher income if you have certain medical or lifestyle conditions (i.e. if you smoke). You could be offered up to 40% more retirement income than an individual in good health. Over 1,500 medical and lifestyle conditions can be taken into consideration, and even if you’re fit and healthy, you could get a higher joint retirement income if your spouse has any medical conditions. Remember, the more serious the medical condition(s) the higher the income.
Then there’s a fixed term annuity – designed to give you greater flexibility in your retirement. You can approach retirement in a series of stages, rather than having to make a one-off decision when you stop working. You can alter your future income to reflect changes that may occur in your circumstances in later retirement. You can select the amount of income you require, between nil and the maximum income allowable. You can select the initial term, for a period of three years upwards. You can purchase another pension product of your choosing at the end of the selected term with the guaranteed sum you receive, and importantly, you can convert to an enhanced annuity and get a higher income if you fall ill during your selected term (this option is not available with all fixed term annuities). A fixed term annuity provides you with flexibility as you’re not tying yourself into an annuity rate that is fixed for life.
Next in line we have an investment linked annuity – this will provide you with a regular income payable throughout your life, with the potential for a rising income, which may protect your future retirement income against inflation. You have the opportunity to receive a rising income, and you can select your starting income within the limits available. However, your income can fluctuate depending upon the underlying investment performance of the funds you’re invested in. And, should you suffer from certain medical or lifestyle conditions you could get an enhanced retirement income. With an investment linked annuity you have the same options as with a conventional annuity.
Out of all your retirement options this one is the most flexible, income drawdown – it doesn’t tie you into an annuity rate that is fixed for life. You can take a tax free cash lump sum, without having to start taking your retirement income at the same time. Or, you can take a tax free cash lump sum and start taking a flexible income at the same time. Whatever you decide, you still have the opportunity to buy an annuity sometime in the future, when it suits you. The main difference between drawdown and an annuity is that your pension fund stays invested to potentially benefit from any future growth, and you take an income directly from it.
Last but not least there is guaranteed drawdown – this provides you with a flexible retirement solution, offering you the security of a either a guaranteed lifetime income, or a guaranteed future pension fund value – your choice. You’re not tied into an annuity rate that is fixed for life. You can receive a guaranteed lifetime income, regardless of ongoing investment returns. You can protect yourself – using guarantees – against falling investment returns or stockmarket fluctuations. You can defer buying an annuity, whilst still receiving an income, and there is an investment lock-in, whereby any gains can be protected. Your retirement options are many. Make sure you make the right decisions.
