If you have been good and saved up a substantial amount inside your Pension then you now have the choice of what to do with that money. The good news is that there is a genuine choice now.
You could buy an annuity which is a guaranteed income for life.
You could keep the Pension and take income from that.
There are other options or of course a mix of the main two options but for the purpose of this report I’ll look at these two main options that in my experience people tend to consider.
The issue you will have is that the two options are very different. I have listed below some of the considerations for each which I hope proves helpful when you are thinking of using your Pension to provide you with an income in retirement.
1. You would be handing your entire Pension to an insurer.
2. In return you will receive a guaranteed income for the rest of your life.
3. You can also include the option for the annuity to pay a spouse’s income in the event of death.
4. There are a range of payment frequency options to suit you and the income acts much like your salary from work.
5. If you die, or both of you die within a short time of taking the annuity then that money you handed over has gone.
6. However, the income you can receive from an annuity can be quite attractive in comparison to what you can earn in interest or dividends.
7. The income you receive can be higher if you have health issues or smoke etc.
8. There is no flexibility as to how you take the income once it is payable so managing your income tax using your Pension assets becomes a non-option.
1. You get to keep the entire Pension in your name.
2. However that does mean you have to invest and nurture the money carefully for the rest of your life to ensure the value remains stable, and grows, and so does your income from the Pension.
3. If you die then you can pass on the entire Pension to your spouse who can continue to benefit from the Pension the same way you did.
4. There can be a range of payment frequency options as well as varying amounts (if you are taking the income after the intended rule changes in April 2015) to suit you.
5. Because you still hold the Pension whatever happens to you the value of the Pension will stay in your estate and you can nominate who this should be left to.
6. The income you receive from investments may well be lower than what you can receive from an annuity. So whilst you do get to hold on to the Pension the trade off is that the income you then receive might be lower.
7. The income you receive from your investment will have nothing to do with your own health or life expectancy. rather it will depend on how your money is invested and the value of the Pension over time.
8. Managing your income tax position is easily done using this option because you can control (under the new rules in April 2015) how much you take out of your Pension and when.