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The new rules surrounding Pensions have introduced a lot of flexibility for those looking to draw an income in retirement. However, the wider range of options can seem daunting.
When you retire you can normally take up to 25% of your pension as a tax free lump sum, although some older schemes pay permit more than 25% to be taken tax free. The rest of your “pot” is used to provide you with a taxable income. This income can be drawn in a number of ways, broadly speaking via the use of annuities or through drawdown.
These can be useful if you are looking for a guaranteed income for life that will not run out. Annuities can be written on a single or a joint life basis – should the income die with the annuitant (policy holder) or should a portion up to 100% continue to be paid on death to the spouse or dependent?
Should the annuity income be provided on a level basis or does the income need to increase every year in line with inflation?
Rather than use the whole of your pension fund to buy an annuity you could simply choose to stop contributing to your pension at retirement and start to draw money back out of it, similar to a savings account.
The way in which this income is drawn and how much depends on your individual circumstances.
Do you need a lump sum of money now or would it be better to have a portion of your income paid tax free instead?
Perhaps a mix of the two?
Annuities and Drawdown do not have to be mutually exclusive and both approaches may be required to tailor your income to your requirements.
Another consideration is what you would like to happen to your Pension pot on your death. Would you like it to be used to benefit your children or is this not important?
At Hankley Financial Planning, we believe that there is not a “one size fits all” approach to providing advice to clients looking to retire.
Therefore, if you would like to discuss your circumstances and options, please get in touch.
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