Few people realise the choices available to them when considering taking benefits from their pension plans. Up until recently, many investors simply asked their pension provider for the benefits they would pay upon retirement, and settled for that. Nowadays, investors have much more flexibility and choice when it comes to deciding how and when to take their benefits.
Many members of occupational pension schemes think they have no alternative other than to take their benefits from the employer's scheme as and when they become available. In fact they could review their choices and assess how appropriate considerations, such as dependant's benefits and inflationary increases, may be in their particular circumstances and by how much their inclusion might reduce the income that they could take now.
They could consider transferring their occupational benefits into a personal pension arrangement or Section 32 Buy-Out in order to reshape them to suit their individual needs and ensure that the most appropriate form could be secured. However, as these are complicated comparisons and highly important decisions, expert guidance should always be sought before any changes are made.
The earliest date at which pension benefits can be taken is currently age 50. However, by April 2010 the minimum retirement age for all pension schemes will be 55.
Pension benefits are usually taken by way of an annuity, i.e. a guaranteed income for life with either a surviving spouse's pension or a fixed period guarantee on death. 'Limited period annuities', where part of the pension fund is used to buy an income for 5 years whilst the balance of the fund remains invested, and 'value protected annuities', where the balance of your fund is paid to your estate should you die before receiving the value of the pension fund as income, are also available .
You can also consider an Income Drawdown plan where you take up to 25% of your fund as tax free cash and use the remainder to provide for flexible income whilst remaining fully invested. Alternatively, you can opt for a 'Phased Retirement' arrangement where you take advantage of segmentation of your pension policy to only take benefits from a part of the plan and leave the balance fully invested.
You no longer have to buy an annuity at age 75, instead you can opt for an 'alternatively secured pension' (ASP), but this does severely limit the amount of pension that can be taken.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
Anybody contemplating or approaching retirement should look at the options available to ensure the most effective use of the available funds to help towards providing the highest returns possible, based on the individual's own circumstances.
We use complex transfer analysis reports and annuity analysis systems to compare the benefits that could be taken from the various options currently available.
If you have chosen to take benefits it may be possible to shop around for the most appropriate pension from all annuity providers, this is called an open market option. Even then, you may also be able to shape your annuity to suit your individual circumstances and objectives. For example, dependant's benefits could be added, guarantees that the income will be paid for a definite period could be added and depending on the annuitant's health or life style e.g. smoker, enhancements could also be achieved.
The choices are complex and we would always recommend that you seek expert independent financial advice