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Quick on the draw savers disregard annuities

Posted on Saturday, June 4th, 2011 in Annuity Rates

Retirement savers look set to discard annuities in favour of income drawdown, so they can control their pension funds for longer.

Independent financial advisers have confirmed they expect more retirees to put off buying an annuity to squeeze as much cash as they can out of income drawdown.

The finding, in research by pension provider Skandia, 80% of IFAs said they expected their clients to delay annuity purchase when they retire.

Most IFAs (59%) believe income drawdown is appropriate for 10% – 30% of clients, while 18% consider income drawdown is a good strategy for more than half of clients.

Income drawdown rules came in to force on April 6 as part of the government’s ongoing pension reforms.

Flexible or capped drawdown options

Drawdown comes in capped or flexible options, depending on the financial circumstances of the pension holder.

The aim is to make managing pensions easier while making sure enough money is left in the fund to last through retirement.

Flexible drawdown lets investors take income from their funds as long providing they can show they have a separate income of £20,000.

Skandia expects income drawdown to gain more popularity as pension holders become more sophisticated and take over managing their retirement savings.

Annuity purchase delayed

Adrian Walker, head of retirement planning at Skandia said: “Income drawdown has always been popular for those who have sought greater control of their retirement income. The sweeping changes to drawdown rules takes this one step further, making income drawdown more flexible and more accessible than ever.

“With the  changes in legislation around the flexibility of taking pension benefits beyond age 75 linked to the wider new income drawdown rules, we expect more people will delay their annuity purchase in favour of using income drawdown – and our research findings support this.”

Despite the attractions of income drawdown, some pensions experts have warned that delaying the purchase of an annuity for too long can result in missing out on several thousands of pounds of retirement income.

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This is filed under: Annuity Rates
Added on Jun 04, 2011 by admin | Comments 0

Income Drawdown v Annuity Purchase

Posted on Wednesday, November 4th, 2009 in Pension Drawdown

Annuity v Drawdown Income Rates

The tables below show the amount of annual income that can be derived from an Annuity and an Income Drawdown or Pension Drawdown as it is sometimes called. Rates after different for a men and women. 

This income is based on the FTSE 15-year gilt yield of 3.75% for October 2009. This rate can vary on a monthly basis so these figures are for guidance only.  An Income Drawdown allows you to take an income that is 120% of the Government Actuary Department (GAD) rate which is 3.75% for the examples shown.  The annuity income is based on a single life with no guarantees and level income.

The first table shows the amounts for a man with an initial fund of £133,333.  The income is based on the fund of £100,000 after the 25% tax-free lump sum of £33,333 has been paid out.

Man Age Annuity Drawdown 120% of GAD Difference
       
50 £5,393 £5,880 £487
55 £5,738 £6,360 £622
60 £6,268 £7,080 £812
65 £6,997 £8,040 £1,043
70 £7,941 £9,360 £1,419
74 £9,041 £10,920 £1,879
       
Man Age Annuity Drawdown 120% of GAD Difference
       
50 £5,307 £5,640 £333
55 £5,541 £6,120 £579
60 £5,941 £6,600 £659
65 £6,543 £7,440 £897
70 £7,387 £8,400 £1,013
74 £8,260 £9,600 £1,340

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This is filed under: Pension Drawdown
Added on Nov 04, 2009 by admin | Comments 0

Pension Drawdown

Posted on Friday, September 18th, 2009 in Pension Drawdown

Pension Drawdown or Unsecured Pension

Expert Advice on Pension Drawdown

This involves you taking up to 25 per cent of your fund as tax free cash, and leaving the remainder of your pension fund invested. In the meantime, you can take income as and when you need it from the fund, subject to certain Inland Revenue limits, but you are not obliged to take income each year. If you want, you can choose to take no income at all for as long as you like until age 75 when you are obliged to either buy an annuity or transfer the fund to an Alternatively Secured Pension or ASP.

The minimum income you can take from an unsecured pension is zero and the maximum is roughly 120 per cent of what a single, level annuity would pay someone of your age. Unsecured pensions replaced “income drawdown” when the new rules for pension simplification came into force on 6 April 2006.

The advantages of taking an unsecured pension

Taking an unsecured pension has a number of advantages including:

  • income flexibility – each year the amount of income taken can be varied between the minimum and maximum limits. Income can also be taken monthly, quarterly, half yearly or annually.
  • control over your investments – if the unsecured pension is set up through a self invested personal pension or Sipp, there is a wide range of investment options available.
  • choice of death benefits – unlike annuities where the only death benefits available are from a joint life, guaranteed, or money back annuity, drawdown offers a choice of death benefits.

For more information visit annuitysupermarket.com

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