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Income Drawdown
Phased Drawdown
Phased Retirement
Third Way Annuities
Unsecured Pensions
Variable Annuities
With Profits Annuities
Enhanced Annuities
Unsecured Pensions / Income Drawdown / Phased Retirement
An Unsecured Pension is an alternative to an immediate annuity purchase. Unsecured Pensions are sometimes known as income drawdown or phased retirement.With an Unsecured Pension, you can first take your tax-free cash element - it can't be taken later - and the balance would therefore remain in your selected pension fund. There's an exception to this in the case of phased drawdown, where your tax free cash and income requirements can be combined.
This type of arrangement is definitely not a suitable option for all.
More Suited to Pension Funds over £100,000
This type of option is suitable for people who have a relatively big pension fund, usually over £100,000. It has the highest investment risk, as your investment will include equity based funds. This may be more suitable for people wishing to defer taking their annuity or have another source of secure income such as a company pension.The income you take from the fund must be reviewed every 3 years to make sure it's in line with HM Revenue & Customs limits.
The disadvantage with Income Drawdown could be that if you were drawing down the maximum income from the fund at the start, you may have a lower amount left at the end (dependent on growth) with which to purchase an annuity. You must also bear in mind that your pension fund may also fall as well as rise.
Phased Drawdown
Phased Income Drawdown allows you to take an income from part of the fund leaving the rest intact to grow. You can take your tax-free cash at intervals instead of all at once. If your remaining fund grows, it means you could have a larger tax-free lump sum than taking it all at once. This may be particularly suitable for someone who is still working and paying tax or somebody working part-time who doesn't necessarily need their maximum income.Phased Income Drawdown allows you to vary the amount of income that you receive from your pension thus giving you some flexibility if circumstances change. This has an added advantage that part of your pension fund has the potential to carry on growing in a tax favoured environment.
It's essential that any individual obtains the appropriate level of advice before committing to this type of arrangement.
With Profits Annuities
With profit annuities are riskier than guaranteed annuities.With Profits Annuities are unlike standard annuities where the fund is invested in gilts and the income level is guaranteed. They are available where the future level of annuity income is linked to the performance, good or bad, of a with profits investment fund. This could mean that although your income has the potential to rise, it also has the potential to go down in years that witness poor fund performance.
Variable Annuities / Third Way Annuities
Although conventional annuities provide a guaranteed income they are not flexible - you have to lock into current interest rates. Variable annuities offer a mixture of income and capital growth benefits.You'll receive some income guarantees, but these provide less protection than the guarantees of conventional annuities.
Variable annuities can also provide investment growth potential. If you choose a conventional annuity you lock into the current gilt yields. This underpins your guaranteed income, but with variable annuities it's possible to participate in any possible future growth.
Third way variable annuities aim to supply a level of secured income from an annuity combining some of the flexibility of Unsecured Pensions (also known as income drawdown).
As these types of annuity product vary widely, it's important for you to ask a qualified annuity broker for further information.
It is also important to ask the provider how strong the guarantee is if the company ran into financial trouble.
Annuity advice is at hand
A professional adviser will compare annuity rates helping you to ensure that you maximise your pension annuity income. The'll explain what options are available to you, advise on transferring existing pensions and on investing your tax free pension cash.They'll of course also help with all the form filling which will help to make sure that your paperwork is processed quickly, smoothly and efficiently.
When seeking impartial advice on choosing the right annuity option that suits your risk profile and circumstances, ensure that the advice is not biased. Many providers, including some banks and building societies can not advise on the annuity products of their competitors.
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