The Pension market, and what is available to people when they retire is often misunderstood. Many younger people who are not saving for their pension may have little interest in the options available when the retire. And those who are saving may have little knowledge of what’s on the table when they reach retirement age.
Some of this is down to the complexities of pension solutions, some of it is down to just a general lack of knowledge. After all, your annuity hardly makes for after dinner conversation.
A key fact to remember about retiring is that it is vital that you turn your nest egg into a regular income that you can draw upon. You will exchange your pension fund into an annuity that will give you a regular and stable income that you can live off throughout your retirement. However you will need to actively consider your options and opt for the best deal that suits your circumstances and future circumstances. The reason why this is important is that once your have chosen a annuity, you cannot reverse it, once it has been chosen.
The earliest you can get retirement benefits is 50, although this will rise to 55 in 2010. A great many people tend to opt for a lifetime pension annuity, which offers you a lifetime regular income. However, if you don’t do this, you will be obliged by law to change your pension pot into an annuity by the age of 75.
If you wish, you could opt for a more risky annuity, by choosing one that is linked to the performance of investments. However it is important to note that these are based on stocks and shares, which means you could lose out as well as make financial gains. Remember, it does not have to be the person that administered your fund that organizes your annuity, you can choose whatever product you feel best suite your needs – known as the “open market” option.
Here are some of the more common options…
i) Conventional Annuity will offer you a regular income, no matter what happens on the financial markets. Safe and Secure.
ii) Enhanced and impaired Annuities give higher levels of cash and often suit those who have medical conditions, as they are based on the premise that their life will be shorter.
iii) Investment Pension Annuities have various levels of risk but are linked directly to the performance of investments.
For the layman, this can be a bit overwhelming, which is why it is always best to seek the advice of an independent financial adviser.
