Unsecured pensions
Option 1: Short Term Annuity
- This option will provide you with tax-free cash at the outset and a portion of the pension fund will be used to purchase a temporary annuity. The remainder of the fund will remain invested in funds of the individual’s choice.
- The annuity cannot be payable for a term of more than 5 years and must cease before the annuitant reaches age 77.
- The annuitant can choose the level of income between 50% and 120% of the equivalent lifetime annuity.
Option 2: Income Drawdown
For larger pension funds, Income Drawdown gives a greater degree of flexibility in choosing the level of income you take from your pension fund, it allows your fund to remain invested for future potential growth, and can offer a number of ‘death benefit’ options for your dependants and provides the following benefits:
- Enables a member to take tax-free cash at the outset and delay the purchase of an annuity until annuity rates become more favourable.
- Enables a member to retain control over their pension investments for longer, and can drawdown the necessary income at intervals.
- Can postpone decisions such as whether to provide contingent pension for a spouse.
However, with this added flexibility, comes a greater degree of complexity, risk, and cost, such as:
- Your income is linked purely to the investment returns generated by your pension fund.
- Your income is not guaranteed.
- There is a higher initial charge and an ongoing annual charge.
- There is a risk that your future income could be lower than the annuity you could purchase today.
Such an arrangement is however appropriate to consider for investors who have pension values exceeding £100,000, are prepared to take an ongoing investment risk and may want to take the full tax free cash but lower levels of pension initially. Additionally these schemes are suitable for those with other sources of income in addition to that generated by their pension, e.g. rental income, or for those whose life expectancy is less than favourable.
For more information on how we act on behalf of our clients, our payment structures and terms please read our Retail Client Agreement (here).