Lock in guaranteed income
Clients may wish to secure more Guaranteed Annuity later in life by seamlessly purchasing it from their Pension Drawdown fund.
This can be achieved wholly within the Retirement Account tax wrapper, by using a proportion of the Drawdown pot to buy further chunks of Guaranteed Annuity.
As clients get older, they are likely to receive a higher rate of income each time they buy a new Annuity, and if their health has deteriorated, they may benefit still further from an enhanced rate.
By delaying their Annuity purchase clients can benefit from the flexibility and potential growth offered by Pension Drawdown for longer.
Robin wants to cut down his working hours, so he needs to use some of his pension fund to supplement his salary...
His pension pot is £90,000 after taking his tax-free cash. He is looking for the best possible guaranteed income over the long term.
Option 1 – use all of his money to buy Guaranteed Annuity
Option 2 – Robin gradually buys Guaranteed Annuity
Age 60 Robin puts £30,000 into Guaranteed Annuity and £60,000 into Pension Drawdown.
Age 70 Robin now gives up work so he needs more income. His Pension Drawdown fund has grown by 4% per year over the last ten years, and totals £88,814. He uses all of this money to buy a Guaranteed Annuity, which pays a higher rate of income than the one he bought at 60 because he is older. Robin is still healthy at 70, but if he had not been he might have received an even higher income
Robin used the flexibility of his Retirement Account to buy income when he needed it. As a result he benefited from investment growth on his Pension Drawdown funds (although this is not guaranteed and funds may go down as well as up), had the option of withdrawing a lump sum between the ages of 60 and 70 if he needed any extra money; and paid less income tax. At age 70 Robin receives income of £6,029 a year as opposed to £3,928 if he’d used all of his money to buy an annuity at the start.
Annuity figures quoted are for illustrative purposes only and assume income paid monthly in arrears, *guaranteed 20 years, **guaranteed 10 years, healthy life. Future Annuity rates cannot be predicted. The value of investments may go down as well as up. Taking income or withdrawals in excess of fund growth may result in the fund running out quicker than expected. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Inflation will reduce how much the Fund is worth in real terms and inflation will reduce how much your income is worth over the years. It is essential to seek advice from a suitably qualified adviser.