There are many important decisions to be made as you approach retirement and some will affect your finances for the rest of your life.
Most pensions allow you to take up to 25% of your fund as a tax-free lump sum. This option may also be offered if you have a final salary pension, such as the Civil Service or NHS scheme. It is important to consider your options as taking more money as a lump sum will reduce the amount paid each year as a pension.
If you have a personal pension your pension company will write to you at least 3 months before your chosen retirement date to offer you a choice of annuity. A lifetime annuity converts your pension fund into taxable pension income, which will be paid to you for the rest of your life.
You will also be advised that you have an “Open Market Option”, which means that you can shop around other companies to get the best annuity for you.
This could be one of the most important financial decisions you will ever make, as once you have bought an annuity you cannot change your mind. The difference in annuity rates could mean that you are several hundred pounds a year better off just by shopping around.
The right annuity for you will vary depending on your age, state of health and personal circumstances, for example if you are married. The size of your pension fund and attitude to risk may also have a bearing on your choice.
Smokers and those with health problems can usually get better annuity rates, called an impaired-life or enhanced annuity. If you have several pension pots you may get better value by combining them into one before buying your annuity.
For a free guide to your annuity options, or for further advice, please contact Emma Greer, Independent Financial Adviser, tel 028 90229798 or e-mail [email protected].