Other Options at Retirement

There are a few, more complex, hybrid annuities available, however, we would stress that anyone interested in these options at retirement seek expert financial advice.

If you would like to speak to a fully qualified adviser about these retirement options then please contact us.

• Phased Retirement
• Income Withdrawal
• Alternatively Secured Pension

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Phased Retirement

So far, we have considered using your total pension fund to buy income. It is possible that you may not need the full income initially, perhaps, because you continue to work part-time or you have other investments.

It is possible to use several pension funds to buy income over a period, say, yearly to give an increasing income. It would also be possible, if the pension fund allows, to take a tax free lump sum each time a pension fund is used to buy income.

If you have only one pension fund it is still possible to use “phased” retirement. Most personal pension plans are set up as a “cluster” of policies, known as segments. Each segment is a stand alone policy so one or more segments can be used to buy an annuity this year leaving the other segments for use over future years. One advantage of this route is that on your death any remaining, unused, segments are available for your dependants as an income or a lump sum, depending on the type of plan.

You must remember that by using Phased Retirement you will also “phase” your tax free cash. You will not be able to take the entire cash sum from your pension at retirement, only the amount attached to the segments when they are used. Nevertheless, many would find a series of lump sums over a period of years extremely useful, albeit the amounts would be smaller.

The unused segments continue to be invested until they are needed with the potential for growth on the fund, meaning that the lump sum on each segment may increase. As a series of annuities are purchased over the years it is possible, as you get older, that the annuity rates on offer at each purchase may be an increase on the previous. It is important to re-state that these benefits are subject to investment growth or changes and cannot be guaranteed.

Phased retirement is only suitable if you have a large pension fund or several pension funds with a larger total - a minimum of £50,000.

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Income Withdrawal

If you would prefer not to buy an annuity but do, nevertheless, require income from your pension fund, Income Withdrawal may be suitable for you.

Income Withdrawal allows you to take income directly from your pension fund. You then decide when to buy an annuity which can normally be anytime from retirement up to age 75.

You take an income at a level obtainable from an equivalent annuity. There are maximum and minimum levels. If you take the maximum level of income it is possible that the remaining fund may not be able to achieve sufficient investment growth to maintain the higher payments.

The full tax free lump sum can be taken when the plan is set up.

Income Withdrawal gives flexibility in the amount of income you can take, within limits. It also allows you to leave your remaining pension fund to your dependants (which may be taxable). You can avoid taking a lower annuity in the hope of getting a better rate when you are older - this, however, is not guaranteed.

Your remaining fund continues to be invested for growth. This, though, presents a risk as a fall in investment performance will reduce your fund whereas, say, a conventional annuity would be unaffected.

Income Withdrawal plans are reviewed every five years by the company to ensure that the fund will allow the current income level of payment to continue. If it will not then your income is reduced.

There is no doubt that Income Withdrawal offers several benefits but does involve extra costs and extra investment risk. This would only be suitable if you can accept the risk and if you have a sizeable fund, say, over £200,000.

We strongly recommend you seek professional financial advice before deciding to set up an Income Withdrawal.

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Alternatively Secured Pension

It allows you to continue to make your own investment decisions about where the fund should be invested, without the requirement to purchase an annuity, with the hope that annuity rates will improve, or until your circumstances change when an annuity becomes more attractive.

This, though, presents a risk as a fall in investment performance will reduce your fund whereas, say, a conventional annuity would not be unaffected.

The full tax free lump sum can be withdrawn.

The income limits will be between 90% of the Government Actuary Department Rates (GAD) the minimum income of 65% of the GAD Rates and will be calculated every five years.

If you die whilst taking Alternatively Secured Pension, there is no automatic return of fund. If you have a surviving spouse then the fund will have to pay an income. If you die without a spouse then the balance of the fund less a tax charge - possibly as high as 82%! - can be paid to another policyholder of the same SIPP, or tax free to a registered charity.

There is no doubt that Alternatively Secured Pension offers several benefits but does involve extra costs and extra investment risk. This would only be suitable if you can accept the risk and if you have a sizeable fund, say, over £200,000.

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Important notes - please read

Do you need advice? - These web pages contain product specific details only and unless we have complete up to date written details of your financial circumstances and requirements we cannot and will not offer any opinion as to the suitability of any product for any client. Any response to these web pages will therefore be on the basis that client specific advice has not been given. These investments are not suitable for everyone. If you have any doubt whether they are suitable, you should obtain expert advice.

Taxation - Please remember that the annuity income will be treated as earned income and will be taxed at your highest rate of tax, as it will sit on top of your other income, including the State Pension. The Pension Commencement Lump Sum is currently tax free. Levels and bases of, and relief’s from, taxation are subject to change.