Retirement Options – Are retirees making the most of their pension savings?

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