The pension landscape for
retirees is very different to how it was even 6 months ago. With the advent of
the new pension freedoms, savers are being ‘trusted’ with their own money in
the sense that they are now able to withdraw what they want and when they want
it.
Early research shows
though that only 1% of eligible pensioners (age 55+) have chosen to strip out
their funds*.
With people generally
living longer, making the most of pension savings is crucial to a happy
retirement. The last thing you want is to run out of money and not be able to
afford to live.
Annuity rates are at an
all time low, and many people do not realise they have options such as
exercising their right to an Open Market Option – essentially buying an annuity
with a provider other than their pension provider, or exploring the possibility
of being eligible for an enhanced annuity.
If a person smokes, has a
higher than average BMI, takes any medication for blood pressure or cholesterol
or has any health problems in general then (subject to medical underwriting) they have a good
chance of qualifying for an enhanced annuity.
An independent financial
adviser can undertake research and obtain quotations from all
providers in this marketplace and as a result could get a retiree a better
income than if they had simply accepted what is on offer from their existing
provider.
An increasingly common
strategy for retirement is income drawdown. Q3 2014 saw an increase of 123% of
new income drawdown policies taken out (year on year)**.
The change in taxation laws
mean that a pension fund in income drawdown is not subject to any tax where the
policy holder is aged under 75, whereas it was previously a 55% tax charge if
the fund was taken as a lump sum on death before 75.
With retirement planning,
there is no ‘one cap fits all’ approach. What is suitable for one individual
may not be suitable for another, and so taking independent financial advice can
be seen as being very important to achieving your goals and ensuring you have a
suitable retirement plan.
An IFA can also consider
the taxation aspect of how to draw income, and look to minimise Inheritance Tax
with prudent planning with pensions.
This
article is for information only and before undertaking any specific action
please seek independent financial advice.
*source www.ftadviser.com
**source www.abi.org.uk
