When George Osborne introduced Pension Freedoms, he claimed that nobody would need to buy an Annuity anymore. In the three years since, the popularity of these guaranteed income products has fallen sharply, with only a slight upturn in recent months ( Source: Opinium). However, it certainly has not been the end of Annuities.
Indeed, for some people, Annuities could still be the right way of converting a pension pot into an income.
When might an Annuity be right for you?
Four instances:
- When you want a guaranteed income: Annuities pay out an annual income, which is potentially inflation-proofed and guaranteed. That means, no matter what your circumstances, you can be 100% secure in knowing that you will definitely receive that part of your retirement income. Annuities provide an income every year for the rest of your life, and potentially your spouse, if included at the outset; no matter how long that might be. So, you don’t have to worry about running out of money, or that your livelihood will suddenly be taken away from you.
- When leaving a financial legacy (to anyone other than your spouse) is not a priority: Annuities don’t usually have provisions to leave money to people, beyond a potential part-pension for your husband or wife. That’s fine if you don’t have children or grandchildren to worry about, or if you plan to leave them an inheritance via other means, such as property.
- When you’re looking for an easy option: If suitable for your needs, buying an Annuity is probably the simplest way to organise your retirement income. This is because it does not need to be reviewed or revisited. It is a one-time calculation and agreement which will then stay the same for the rest of your life.
- When you are considering a hybrid retirement income solution: With the freedom to mix and match their retirement income, many people have begun to fuse guaranteed income and drawdown methods to meet their financial needs.
What is a hybrid income solution?
By combining both Annuity and Drawdown income methods, you will have the foundation of a guaranteed, potentially inflation-proofed income from the Annuity. This can be used, in conjunction with the State Pension, to cover living costs and ongoing financial needs in retirement.
Retaining some of your pension and accessing it via Drawdown gives you the flexibility to withdraw that money as and when it is needed. You also have the option to keep it invested, ready to be handed down to loved ones when you die.
Having the security of an income for life, and the adaptability afforded by drawdown means that you have the potential to make your income work for you to support the lifestyle that you want in retirement.
How can you be certain that you are making the right choice?
Financial planning is the answer.
As Chartered Financial Planners, we offer the ability to forecast your needs in retirement, based on your current situation and circumstances. From this, we can calculate how much you are likely to need to live the lifestyle you desire when you have finished working.
Research from Unbiased has shown that those who seek financial planning and advice when planning their retirement income, could save an extra £98 per month toward their pension. This could provide an additional income of up to £3,654 per year in retirement.
Talking to a financial planner will help you to get your money organised and will put you on the right track to meet your goals in life; both short and long term.
For more information and to find out how financial planning can help you to work toward your retirement goals, get in touch with us on 01664 77 88 99.
