Options at retirement

In essence, you have considerable choice regarding what happens at retirement, particularly if you are in a money purchase (defined contribution) arrangement.

Unless the insurance company that has built up your retirement fund offers a guaranteed annuity rate at the time you wish to retire (in some cases, this was as much as £1 a year for every £10 of fund value at age 65), you will probably be better off exercising what is called your 'open market option'. This is the right to approach any insurance company to provide your tax free cash and an annuity for you, rather than relying on the company you are with.

In fact, thanks to changes brought about in April 2006, you can now take as much as 25% of your total pension fund as a 'pension commencement lump sum' (currently free of tax) at any time after age 50 (rising to age 55 in April 2012). However, you need not purchase an annuity at all.

Instead, you can draw an income directly from your fund of anything from zero to 120% of the annuity rate for a person of your age and sex. This means you can access your 'tax free cash' even if you are continuing to work and do not want to take an income, or if wish to continue working part time and therefore need to be able to vary your income from year to year.

When you reach your 75th birthday, the rules change and while it is possible to continue drawing an income directly from your pension fund, you can no longer access any 'tax free cash' and the government has already changed its original decision, to the extent that you will have to draw a minimum level of income from then on. There are also severe tax penalties on any money left on death after age 75, unless used to provide benefits for a spouse, civil partner or dependent, or given to charity.

We would be pleased to advise you on your options.

To discuss your requirements or for further information, please Contact us.