Alternatives to Standard Annuities...

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Unsecured Pensions / Income Drawdown / Phased Retirement

You might choose an Unsecured Pension (sometimes known as income drawdown or phased retirement) as an alternative to an immediate annuity purchase,

With this arrangement, you can first take your tax-free cash element, (it cannot be taken later), and the balance would therefore remain in your selected pension fund. There is an exception to this in the case of phased drawdown, whereby your tax free cash and income requirements can be combined.

You can now draw down a chosen amount of between 0 and 100% of the calculated single person's annuity value for the remaining fund. The residual fund can be converted into an annuity when you choose to end the Unsecured Pension arrangement. An Unsecured Pension is definitely not a suitable option for all.

More Suited to £100,000 Plus Pension Funds

This type of option is suitable for people who have a large pension fund, usually over £100,000 and has the highest investment risk, as your investment will include equity based funds. This may be more suitable for people wishing to defer taking their annuity or have another source of secure income such as a company pension.

The income you take from the fund must be reviewed every 3 years to make sure it is line with HM Revenue & Customs limits.

The disadvantage with Income Drawdown could be that if you were drawing the maximum income from the fund at the start, you may have a lower amount left at the end (depending on growth) with which to purchase an annuity. You must also be aware of the fact that your pension fund may also fall as well as rise.

Phased Drawdown

Phased Income Drawdown allows you to take an income from part of the fund leaving the remainder intact to grow. You can take your tax free cash at intervals instead of all at once. If your remaining fund grows it means you could have a larger tax free lump sum than taking it all at once. This may be particularly suitable for someone still working and paying tax or somebody working part time who does not need their maximum income.

Phased Income Drawdown allows you to vary the amount of income that you receive from your pension thus giving you flexibility in changing circumstances. This has the added advantage that part of your pension fund has the potential to carry on growing in a tax favoured environment.

It is essential that any individual obtains the appropriate level of advice before committing to this course of action. Investments can go down as well as up and are not guaranteed.

Variable Annuities / Third Way Annuities

Although conventional annuities provide a guaranteed income they are not flexible - you have to lock into current interest rates. Variable annuities offer a mixture of income and capital growth benefits.

You'll receive some income guarantees, but these provide less protection than the guarantees of conventional annuities.

Variable annuities can also provide investment growth potential. If you choose a conventional annuity you lock into the current gilt yields which underpins your guaranteed income, but with variable annuities it's possible to participate in any possible future growth.

Third way variable annuities aim to supply a level of secured income from an annuity combining some of the flexibility of Unsecured Pensions (also known as income drawdown).

As these types of annuity product vary widely, it's important for you to ask a qualified annuity broker for further information.

It is also important to ask the provider how strong the guarantee is if the company ran into financial trouble.

With Profits Annuities

With profit annuities are riskier than guaranteed annuities.

With Profits Annuities are unlike standard annuities where the fund is invested in gilts and the income level is guaranteed. They are available where the future level of annuity income is linked to the performance, good or bad, of a with profits investment fund. This could mean that although your income has the potential to rise, it also has the potential to go down in years that witness poor fund performance.

How We Help You

It's important that you take professional advice if you are considering the options on this page. Our quotation service includes a comprehensive research and recommendation process.

An FSA registered financial adviser (not a call centre) will contact you to discuss your exact requirements and formulate a tailored proposal for your circumstances. There is no charge for us investigating your policy and you are under no obligation to follow any recommendations that are made.

Our advisors will always make you aware of the risks involved and will work to produce a suitable investment portfolio for your risk profile. For a no-obligation quote simply complete the form below and Retirement Solutions (UK) will search the market to help you find the best drawdown plan.

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