Five Key Steps

Here are five key steps to a better retirement income. If you follow these steps you’ll be well placed to get a better retirement income.

Pension advice

Be prepared to take pension advice. Read the relevant Financial Services Authority (FSA) publications, take a look at the Pensions Advisory Service (TPAS) website, and read up on any other unbiased guidance you find.

Pension options

If you are not sure how to evaluate the various pension options available to you, take advice from someone who does know.
Consider whether you might qualify for an enhanced annuity on the grounds of your health or your lifestyle.
If you are considering taking an alternative route other than an annuity, such as income drawdown, your need for advice is likely to be greater.
If your pension savings represent the lion’s share of your income in retirement, the choices you make will be critical. Once you make your decision about your pension options, you may not be able to change your mind.
How is your pension fund invested? Many people’s funds have been badly affected in the recent stockmarket turmoil. Take advice; check that your pension pot can be used to the greatest effect, and don’t be caught out.

Retirement income

Think about what you need to live on now, and what you might need to live on in the future, say in 5, 10, 15 or 20 years’ time.
Do you have any other sources of retirement income? What part might they play in your retirement?
What about the needs of your partner and anyone else who is dependent on you? How might this effect your retirement income requirements? Might a joint life annuity be appropriate?

Tax-free cash

Could some of it be utilised better to buy extra income in retirement?
Find out how much tax-free cash you are entitled to. Work out how much of the lump sum is available for investment, after deducting amounts that are actually needed for other important purposes, such as paying off debts.
Find out how much extra retirement income you could get if that remaining lump sum were used to buy an annuity.

Retirement risk

Are you willing to put some of your pension savings at risk in the hope of achieving a higher income in the future, such as in an income drawdown plan?
What is the minimum level of income you will need to meet essential expenses?
Decide on the strategy you will follow and the investment approach you will take with any assets that are not used to buy an annuity.
Work out how much income you will be able to generate from your retirement income plan. If it is not enough, you might have to reconsider your plan. Maybe you don’t need to spend your tax-free lump sum immediately. Perhaps it can be used to generate a bigger income.

Best annuity rate

If you are going to buy an annuity, then shop around. Use the open market option; it allows to you to move your pension fund to another provider offering the best annuity rate. Your current pension provider may not offer you the best annuity rate and you cannot change providers after purchase.

Retirement brings with it many welcome distractions – not working, holidays, a new car, that sort of thing – but you must remember to give your pension arrangements plenty of time and thought too. Doing this well in advance of retirement is important.

Making the wrong decision about your retirement planning and buying an annuity can be financially disastrous. Mistakes made at this important time are often impossible to correct and even ‘safe’ choices can present problems if things do not go to plan.