Options at retirement
Since April 2006 it has been possible to exercise even greater choice when you come to retire.
For many people, once they have considered taking the tax free cash to which everyone is entitled, the best option will be to purchase an annuity (an income provided by an insurance company) for the rest of their lives on a pre-determined basis.
Annuities are normally:
- Level or increasing at a pre-agreed rate;
- Single life or for self and spouse or civil partner; and
- If on a joint life basis, level or reducing on the first death.
We can advise on whether or not the annuity rates you are being offered by your pensions provider represents good value and obtain alternative quotations for you. Again, if you have some health problems we can obtain enhanced annuity rates from providers known as 'impaired life' annuities.
However, for those with larger funds and/or alternative sources of retirement income, an 'unsecured pension' (what we used to call 'income drawdown') can be an alternative to low interest rates (on which annuities are based).
Under the unsecured pension option, an income of anything from zero to 120% of the annuity available to a person of the same age and sex can be taken from age 50 (rising to 55 on 6th April 2010) to age 74, after any tax free cash required has been taken.
Importantly, this income can be varied each year.
Should you die while drawing an 'unsecured pension' the money can be used to provide an income for a surviving spouse or civil partner (and some other legal dependents) or returned to the individual's estate - although in this case there is a tax charge, currently of 35%.
After 75 the rules change considerably, so that the minimum income under what now becomes called an 'alternatively secured pension' is increased to 55% of the annuity available to a person aged 75 of the same sex, while the maximum is reduced to 90% of that amount. The 'base annuity' level does not increase with age, but it is still possible to vary the income within these limits. As with the 'unsecured pension', it is possible to convert to an annuity at any time. This option was introduced to accommodate those holding a religious objection to annuities.
Should you die while drawing an alternatively secured pension the potential tax liability can be as high as 82%.
For more information about how Dawson Whyte (Life & Pensions) can help you, please click here.
Financial planning
Building a better future
Buying your home
Protecting your family
Protecting your income
Planning for retirement
Pension transfers
Options at retirement
Medical care for the family
Later in life
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