There are many alternatives now available to the retiring person.  As part of the process in advising those most appropriate to you, we refer to your existing financial profile (and if applicable that of your spouse or partner), pattern of need for future capital and income and your health.  In addition we use government statistics to predict longevity.  The most popular options open to you are currently:

Annuity Purchase, where the client wants no individual responsibility for investment risk going forward. They are happy to give their pension fund to an insurance company in exchange for a set level of income going forward. This income may remain level or increase annually.  It can be income for the planholder only or include a spouse’s benefit should they die first. Once an annuity is purchased the terms cannot be altered so it is imperative to make the right choices at the outset.

In the event of death, if no additional benefits have been selected, the annuitants’ income ceases and is lost to the insurer.

James Phillips & Co’s task is to find the best rates available from the annuity market. These may be the standard rates generally available or enhanced rates that can be obtained by having the client medically underwritten or if the client is a cigarette smoker.

Income Drawdown, where the client accepts individual responsibility for investment risk going forward. They are happy to withdraw their pension income entitlement from an invested pension fund account. This income is reviewed 3-yearly and so has the opportunity to increase should underlying investments maintain their value or prosper. There is no need to provide a spouses pension either as the spouse may replace the pensioner should he/she die. Income withdrawals may be altered at any time (to between 0%-100% of the maximum drawdown figure). An annuity may be bought at any time from the income drawdown fund.

In the event of death, the spouse may continue to drawdown at 100% of the maximum income level available to the planholder. Alternatively, the plan made be wound up and a lump sum taken of the fund value less 55% tax.

James Phillips & Co’s task is to put together a plan that is invested in line with the clients stated acceptable level of risk. Investments may be accessed from across the market, not tied to just one provider. Advice will then be provided as to the need for any tax free capital withdrawals required before income withdrawals commence.

The plans are reviewed formally with the client twice yearly to ensure that both income and underlying asset values remain within acceptable parameters.

Phased Retirement. The ability to take withdrawals as part income and part tax free cash. This has the advantage of only converting part of your fund to ‘income drawdown’. On death, that part that is not converted may be paid free of inheritance tax (up to £1.8m for 2011/12). 

Capital Investment Retirement. A major attraction of pension funds when tax planning is the feature that the fund is free of Inheritance Tax (IHT) on death before age 75. Therefore, at retirement, it is sometimes worthwhile considering taking income from personal capital investments (that would ordinarily be subject to IHT) rather than the pension fund. It may also be possible to use part of the pension fund to provide the benefits required rather than all of it.

Please contact Patrick McGee by clicking here…