If you are considering drawdown, these are some of the important factors to consider
-
- How big an income do you need to take from your pension now and will you need to
see it rise later on?
- Do you have other sources of income so you can afford to take a risk with the money
from your pension?
- Are you happy to see your pension fund invested on the stock market when you are
close to retirement?
- What do you want to happen to your pension when you die? Do you want your widow/er
to get a pension or see a lump sum paid to your estate or other beneficiaries?
- How healthy are you? Special impaired life annuities are available to people with
short life expectancies that pay out larger than usual incomes.
- Do you want to get at your tax-free cash lump sum now or later on?
- How long do you want to wait before you buy an annuity?
All this has to be weighed up alongside the alternatives, of which there are now
many in addition to the traditional guaranteed annuity, which include the following -
Company pension scheme retirement incomes that rise by as much as 5 per cent each
year: This money may be paid directly out of the pension fund itself and often extra one-off pension increases are made.
On top of this, the scheme provides widows' and dependants pensions.
An annuity linked to stock market performance: With profits and unit-linked
annuities start off paying a set level of income and that income will then rise broadly along with the stock market. However
if investments fall, so does your income, so anyone taking out one of these annuities is risking their income.
Phased Retirement: It is possible to have your pension income paid to you
bit by bit using a phased retirement plan. Instead of buying one annuity with your pension pot, the pot is divided into a
series of segments, often 1000 in all. Bundles of segments are cashed in to provide tax-free cash and secure annuities as
and when you want to increase your income.
Life Expectancy
You should also consider how much longer you are likely to live, most people underestimate
this, and that longevity is increasing by around 2 years every decade at present. Most people will spend between 15 - 25 years
in retirement.
As an example it is currently forecast that a Male reaching age 65 in 2015 will live, on average, to just
2 months shy of his 90th birthday.
