What about using income drawdown instead of the best UK pension annuity rates. Income drawdown, or unsecured pension as it is now known, allows personal pension plan holders to opt for regular or ad hoc withdrawals from their pension fund (i.e. pension drawdown) instead of  being required to buy an annuity with their pension fund. The remainder of their pension fund stays invested with an insurance company. This gives the pension plan holder more control over their pension arrangements. However, at age 75, you must purchase a pension annuity.

Significant advantages of income drawdown comes down to flexibility. You have the ability to take the tax free lump sum of up to 25% while leaving the pension fund invested in the stockmarket and you get improved death benefits for a spouse or beneficiaries should you die prematurely. Although this option may be riskier than taking the best UK annuity rates with an annuity to begin with, you could save money by reducing the income taken in some years, thus avoiding potential higher rate tax liability.

This article is about pension annuities and alternatives to getting the best pension annuity rates in 2010; some alternative retirement options. Although a basic annuity will be suitable for most people, there are alternatives available for those with larger pension funds and a willingness to take higher risks. The main two options are an investment linked annuity and income drawdown (now unsecured pension). With normal annuities, your purchase money will be invested in gilts. These pay out a fixed level of interest and, because the UK government issues them, they are regarded as a particularly low risk investment.

Investment-linked annuities covers both with profits annuities and unit linked annuities, and, if security is important to you and you’re depending on your annuity as your sole source of income, you may find these products too big a risk to take. Compared to a conventional pension annuity, in theory you could potentially get better returns with an unsecured pension. But they’re called unsecured for a reason, and your investment could be susceptible to drops in the stockmarket. This option is really for sophisticated investors who are comfortable taking risks and who could possibly afford to lose some money. With an unsecured pension arrangement, your income is not set for life. It remains partly invested and exposed to the stockmarket.

There are three different types of unsecured pension. There are short-term annuities, income withdrawal, and phased retirement, and there are three key reasons people choose these over conventional annuities. There are those who only need a small amount of the income that would be accessible from a pension annuity and they may wish to leave most of the fund invested while drawing their limited income. And, when annuity rates are low you might decide to delay buying one in the hope that rates will increase. There are no guarantees that this will happen, though. Or, if you want to leave the fund to your partner should you die, an unsecured pension means your money is more accessible.

Maybe now is the time to be preparing your personal finances for a stockmarket recovery. Maybe you should look to get your pension fund investments back on track ready to buy your annuity with. It is possible that an economic recovery may have unwelcome financial consequences for some if they have not pre-empted the likely changes.

Keeping your personal finances in order throughout the current turbulent economic times we are witnessing has been all about battening down the hatches and limiting your exposure. However, in recent weeks we have seen a lot more positive news coming from economists and industry. Even the Confederation of British Industry (CBI), the employers’ organisation, sharply upgraded its own growth forecast recently, and maybe there are signs of economic green shoots, but not everyone agrees with the CBI on the time frame. Certainly not when you consider that public borrowing hit a record £19.9 bn in May. 

Those approaching their retirement may wonder if their battered pension fund might benefit from more time to recover from their falls, and may be debating whether to wait to buy a pension annuity to provide lifetime income, or considering a more flexible product like income drawdown that allows some money to stay invested. Interestingly, though, it is not usually wise to delay buying a pension annuity.

There are some quite opposing views about the current economic situation, and retirees should be very careful not to end up in a worse position than they are in currently, particularly if the so-called economic recovery turns out to be “W” shaped, with yet another dip in equity values. Those coming up to their retirement should be very wary of gambling their pensions on a short-term market recovery, and a one-year time frame is certainly not an appropriate one for stockmarket risk. Then we have annuity rates to consider, and at the moment they aren’t heading in the right direction, but might they in the future?

Instead of buying an annuity by the age of 75 there is an option, and it goes by the name of an alternatively-secured pension (ASP). Retirees can move into an ASP from income drawdown (now called unsecured pension) when they reach age 75 as a way of remaining invested in the stockmarket and taking an income from their pension fund.

An ASP might suit those who still want to keep their pension funds in the stockmarket, but the main benefit is likely to be for those retirees who want to pass their pension money to their heirs on death, by avoiding buying a pension annuity. Now, while ASP’s can be used to pass pension fund money to heirs, the tax charges are very punitive at up to 82%, and there is also an obvious risk in remaining  invested in the stockmarket at this age.

A scheme pension is typically used in occupational pension schemes such as final-salary arrangements. But some insurers have recently set up such plans, aimed at families or the small business, that also allow scheme pensions where an actuary for the pension arrangement calculates the amount of income to be paid out to the retiree each year. These scheme pensions can pay out a higher income than a pension annuity or ASP, even considering good annuity rates, which is calculated using government actuary (GAD) figures. Scheme pensions can also be used to pass pension monies to heirs, by buying a 10-year guarantee on the income taken, which can be paid out to beneficiaries after the scheme member dies. However, these can be very expensive to set up, with initial charges of typically more than £1,000, with hundreds of pounds being paid in annual fees, making it quite a niche product.

So, if you are heading towards age 75, looking at annuity quotes for the best annuity rates, which should be good at that age, but you are unsure of the position regarding your death and passing money to your heirs, maybe an ASP is worthy of consideration.

Living Time has announced changes to the flexibility of their Income Plan, their alternative to an annuity. They have just reduced the minimum term on their Income Plan to three years, offering retirees extra flexibility to arrange a secure retirement income while keeping their options open. This Income Plan pays a secure rate of income to the retiree during the term and then returns a guaranteed maturity sum that the client can use to purchase a new retirement income solution that best fits their changing needs.

Without investment performance risk, that income can be tailored at the outset to meet retirees demands, subject to the maximum 120% of the government’s actuaries department (GAD) limit. Living Time state that the Income Plan is a very straightforward package offering greater  flexibility than a lifetime pension annuity but more security than normal income drawdown, and they believe that the plan will appeal to independent financial advisers (IFA’s) who want to advise clients not only at the point of their retirement, but on effective use of their pension fund throughout the early years of retirement.

The economic turmoil we are witnessing has made IFAs and their clients very wary of locking for life into what this year has to offer, driving demand for real alternatives to lifetime annuities, and the  Income Plan offers such. It must be taken out for any term of at least three years, and will provide a secure income during that period, and to a maximum age of 75, and it allows retirees keen to wait for the economic dust to settle, so to speak, to have a better view of their ongoing health and wealth situation.

The Living Time Income Plan can accept pension monies that includes protected rights funds and is also available as a Trustee Investment Plan (TIP) paying a guaranteed return within a self invested personal pension (SIPP), and it could be worth considering as you search through annuity quotes looking for the best annuity rates.