Guides

Growing a retirement income
Do you need a review of your investment strategy?

Converting your retirement savings into an income is one of the most important financial decisions you are ever likely to make. The traditional way has been to use the capital to buy an annuity that provides an annual income, but there are ways in which you could delay such a purchase.

One option is to consider an unsecured pension, also known as ‘income drawdown’ or ‘pension fund withdrawal’. You draw an income directly from your pension fund while the fund remains invested. The maximum level of income you can draw is approximately 120 per cent of the level lifetime annuity payable to a single person of your age and sex, with the minimum being zero. You could then use your remaining fund to buy a lifetime annuity at any time.

Anyone in a personal or stakeholder scheme can use an unsecured pension, apart from those with very small funds. If you want an unsecured pension but your employer’s scheme doesn’t offer it, you may wish to consider transferring your pension rights from that scheme into a personal pension scheme. However, you may lose any entitlement to a tax-free cash sum greater than 25 per cent of the fund value.
Alternatively there is ‘staggered vesting’. This is also known as ‘phased retirement’ and is a way of drawing an income from your pension fund while delaying the purchase of an annuity. Personal pensions are broken into segments, allowing you to take benefits from segments in stages over a number of years. Each time you draw on a segment, a tax-free lump sum of 25 per cent can be taken and the balance used to buy an annuity. The remaining funds remain invested.

With both of these options you need a careful review of your retirement strategy. If you are over-cautious you might not achieve enough growth to maintain your income, and equities may need to play a part in your portfolio. If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. Any references made to the Pre-Budget Report may be subject to the Finance Bill becoming law.

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