To Annuitise or not? that is the question

With annuity rates at what may prove to be an all time low it is very important that when looking at retirement income options every possibility is explored. It may be that accessing the Pension Commencement Lump Sum (PCLS) is a desire but what about deferring the annuity until it is needed, by which time annuity rates may have improved plus you will reduce your exposure to income tax, and create the possibility of further growth on the remaining funds, this can be achieved in a Draw Down contract.

How about taking the Maximum income from the Draw down and recycling back into a Personal Pension Plan which is a tax neutral arrangement but creates another PCLS for future use?

Remember that if you choose a fixed term annuity (FTA) the maximum guarantee period that can be purchased is 10 years, this is not the case with a draw down contract were It may be possible to take the un crystalised  (remaining) fund as a lump sum subject to a 55% tax charge or it may be possible to carry on with the annuity provision in place and pay income tax at the appropriate notional rate.

Remember if purchasing a FTA declare all health & mobility issues to your adviser as this may help in obtaining a higher annuity rate (impaired life annuity), consider the benefits or disadvantages of indexation of payments (which usually results in a break even point of circa 14 years on the fund), single or joint life annuities, 5 or 10 year guarantee periods, with or without proportion & how often the annuity pays out and if it paid in advance or in arrears, all of these factors and more will determine the amount of income paid out and when calculated over the life expectancy period this can amount to a large sum of money.

Finally if in drawdown be careful about taking the maximum income possible (unless recycling) rather than taking how much you need to live on, which can be identified by using a simple expenditure planner.

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Please note when reading any information on this website: past performance is no guide to future performance. The value of an investment may go down as well as up and an investor may not get back the full amount invested. Before investing, please ensure that you have read the information set out in the simplified prospectus, which includes full details of the charges. Any material available is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed on this website represent the views of Stephen Baker Financial Consultants Ltd at the time of publication, are subject to change, and should not be interpreted as investment advice.

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