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| pensions:
retirement options
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Unsecured Pension
You could transfer your existing fund into a flexible personal pension plan, which offers an Unsecured Pension facility - these are typically divided into 1,000 arrangements. These plans enable you to withdraw the amount of income you need directly from your pension fund each year, instead of purchasing an annuity.
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How does it work?
Each year you are able to withdraw income directly from your pension
drawdown plan within limits, which are set by the Government and
reviewed every three years.
The maximum amount of the fund remains invested in a tax efficient environment (for you and your dependants benefit).
Tax-free cash may be taken at the point in time when an arrangement is used to withdraw income. No further tax-free cash may come from that arrangement.
This plan allows you to manage your income and delay the purchase of an annuity until such time as you wish e.g. when annuity rates are sufficiently attractive or you are more certain of the type of pension that you wish to buy.
What happens on death before age 75?
If you were to die after starting to withdraw income from your arrangements, your spouse or dependants have the following options:
- Use the value of the arrangements as a lump sum to purchase an annuity..
- Take the remaining value of the arrangements as a lump sum, after a tax deduction (which is currently 35%). This option can be taken at any time within two years of your death.
- Continue with income withdrawals - your spouse or dependants may continue Income withdrawals until their 75th birthday at which time they must move to either Alternatively Secured Pension or purchase an annuity.
What happens on death after age 75?
This depends on whether you used your pension fund to purchase an annuity or moved to Alternatively Secured Pension. Further details can be provided on request.
Advantages
- You can delay buying an annuity. This means you can avoid buying an annuity if, for example, you think annuity rates offer poor value for money.
- Unsecured Pension offers the most flexible way of taking income, enabling you to alter it within minimum and maximum limits.
- Benefits on your death could be greater than if you purchased an annuity, although a 35% tax charge is levied on any funds you have started to draw income from.
- You will retain investment control of your pension fund, and could increase your pension income with good investment growth.
- Your pension fund will continue to be invested in a tax efficient environment.
Disadvantages
- There are no guarantees your income will be greater than if you used your entire fund to purchase an annuity at retirement. If annuity rates fall, or investment growth is poor, your retirement income could be lower.
- You can only take the tax-free lump sum when withdrawals start, it cannot be deferred.
- Your death benefits under phased retirement may be greater, because of the 35% tax charge.
- If too much income is withdrawn your fund may run out too early.
- You may need to purchase an annuity by age 75, even if annuity rates are poor. You could move to Alternatively Secured Pension. However, this may mean that the income you are receiving is reduced.
- Initial and on going charges are usually higher than those associated with a conventional annuity and have to be taken into consideration.
- Continuing advice is essential, at least annually in order to monitor the investment performance of the fund and your income requirements.
- Every five years from the date that income withdrawals have started, the minimum and maximum withdrawal amounts will be recalculated (based on rates issued by the Government Actuaries Department). This may lead to a change in the level of withdrawals you can take.
Protected Rights
The above points also apply to Protected Rights funds that are taken via Unsecured Pension. However, when you purchase an annuity, it must include a 50% spouses pension if you are married at that time.
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