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Page 2 of 2 Shopping around is especially important if your health is poor or you have an unhealthy lifestyle, because you can often get a higher-than-normal income if your life expectancy is lower than the average for people of your age. If you have a partner, consider their financial position if you were to die first. Unless they have sufficient income from their own sources, you should normally choose a joint-life-last-survivor annuity that will pay out an income until the second of you dies. Alternative pensionsInstead of buying an annuity, you can leave your pension fund invested and draw a pension direct from it. In the past, you could do this only up to age 75 at which time you had to switch to an annuity. Under the new rules, you can carry on with income withdrawal as long as you like.There are ongoing fees for income withdrawal and it’s worthwhile only if you are prepared to invest your fund in stock-market-linked investments that offer a chance of reasonable returns but involve risk. A big plus is that any fund left at the time you die can be passed on to dependants and others, but tax charges may apply including, on death after 75, inheritance tax on amounts left to anyone other than dependants and charity. Get independent financial advice if you are thinking about income withdrawal. Case study: Lump sum can be a poor dealRay, 65, has belonged to his employer’s final salary scheme for 24 years. The scheme promises a pension of one-sixtieth of his pay for each year of membership and Ray is retiring on a salary of £30,000. His full pension would be: 24 x 1⁄60 x £30,000 = £12,000 a year.The scheme lets him swap some of this pension for a tax-free lump sum at a rate of £12 lump sum for each £1 of pension given up. Ray is thinking about reducing his pension to £10,000, which would give him a tax-free lump sum of 12 x £2,000 = £24,000. But if Ray were to go out on to the open market to buy a pension (an annuity) that would provide him with £2,000 a year pension, increasing each year at least partly in line with inflation, he would have to pay nearly £37,600. This is way more than the £24,000 lump sum he has received, indicating that the lump sum offer is a poor deal. Useful contactsFSA Comparative TablesTel: 0845 606 1234 www.fsa.gov.uk/tables To find an independent financial adviser (IFA): IFA Promotion Tel: 0800 085 3250 www.unbiased.co.uk |
