Will cashing in your annuity lead to a better pension? Reply

This is exactly how I pictured the partners lounge

The chancellor George Osborn has announce that he plans to allow pensioners to cash in their annuities.

Before the pension reforms….

Individuals saved into a pension during their working life and so built up a pension pot.

At some point during the first years of retirement, they used the money to buy an annuity from an insurance company.

This is a transaction that occurs once, and only once.

An annuity is an annual retirement income that is paid to them for the rest of their life.

BBC

From April 2016 the proposal is to allow pensioners to swap an annuity for a fixed lump sum.

But will pensioners be able to find investments which are better than the annuity they currently have?

steve@bicknells.net

Budget 2014 – Pensions you can spend, hooray! 1

Pot of gold coins isolated on white

Thank Mr Osborne, its been a long time coming but an end to being forced to buy an annuity is coming….

From April 2015, pensioners will have the freedom to cash in as much or as little of their pension pot as they want, removing the need to buy an annuity.

We will now have the choice of taking a lumpsum, drawdown over time or buy an annuity.

The news wasn’t good for Life Insurance Companies who saw £4.4m wiped off their value yesterday.

If you do want to buy an annuity you be able to get free independent advice.

There will also be a new NS&I Pensioner Bond savings scheme to be available from January to all people over 65, paying interest rates of 2.8% for one-year bonds and 4% for three-year bonds.

From 27th March 2014 small penion pots can be cashed in, the ABI say that 25% of annuity sales related to pension pots of less that £10,000.

“Savers with pension pots of less than £30,000 can now take this out as cash, in what is a welcome lifeline for savers with small pension pots,” says David Macmillan, managing director at life and pensions provider Aegon UK.

There are still rules and the changes apply to Defined Contribution Schemes not Defined Benefit Schemes but this is a massive change in pension rules.

steve@bicknells.net

 

 

Using Income Drawdown – how much pension will you be paid? 2

Basically when you want to retire you could buy an annuity

http://www.ft.com/personal-finance/annuity-table

But personally I am not keen on annuities because when you die (or when you and your spouse die) the fund is lost

So if you have a SIPP or similar Pension, Income Drawdown might be better but unless you have a guaranteed income of £20,000 (in which case you can do Flexible Drawdown – meaning you have a lot more freedom over how much pension you can be paid) your pension is capped based on GAD tables.

http://www.hmrc.gov.uk/pensionschemes/gad-tables.htm

I have found an online calculator that makes it easier

http://www.hl.co.uk/pensions/income-drawdown/income-drawdown-calculator

steve@bicknells.net