Jeremy’s 65-years-old and has built up a £90,000 pension fund (after tax-free cash of 25%). He’s had issues with his health over the last few years, so is keen to retire. He picks up a State Pension but aside from that this is his only source of income.
His number one objective is to ensure that he generates enough regular income to see him through his retirement. In addition he would like a small amount of his savings to be accessible and would like to make sure his children end up with something should he die.
His financial adviser suggests that Jeremy takes out a Retirement Account and using his £90,000 investment he:
- buys a Guaranteed Annuity with £75,000 of his investment. This provides him with just over £4,500 a year of secure lifetime income. The income provided was improved as a result of his health problems.
- uses the remaining £15,000 to invest in Pension Drawdown. His adviser helps him select a balanced fund, which invests in equities and other financial investments. He has complete freedom to dip into this investment whenever he wants.
Jeremy sets up a 30-year guarantee on his Guaranteed Annuity. This would pay his beneficiaries an ongoing income after his death. So for example if he died after receiving 5 years of payments then the income would continue for another 25 years, or a lump sum could be paid immediately.
The money in Pension Drawdown could be paid as a lump sum on his death.