Income Options at Retirement

Questions for consideration

Are you within 6 months of wanting to take income from your pension(s)?

Have you received an annuity quotation from your pension provider but are unsure about whether you should take the annuity quoted?

Are you confused about what your options are?

The purpose of this page is to highlight the possible options when taking income from your pension plans. An annuity is still a popular one, but there are alternatives that should be at least considered. We advise on all of them.

Note – decisions you make now will have an impact on your income for the rest of your life.

Some typical annuity options:-

  1. Guaranteed – income stays level or increases, but the terms are guaranteed
  2. Investment backed – income levels will increase and decrease with the fund size
  3. Temporary – income stops after a pre set number of years
  4. Third Way – income stops as with number 3, then you receive a lump sum
  5. Enhanced Annuity – if poor health and/or a smoker you may qualify you for a larger income

The alternative options:-

  1. Flexible Drawdown
  2. Capped Drawdown

Capped and Flexible Pension Drawdown Explained

The Treasury has published new rules removing the requirement to buy an annuity with your pension at age 75.

Legislation for the new pension annuity rules is effective from April 2011.

New Flexible Pension Drawdown Rules

1. Alternatively Secured Pension (ASP) Rules – i.e. pension drawdown limits after age 75 – was abolished on 6th April 2011

2. Unsecured Pension (USP) – i.e. pension Drawdown rules before age 75 will continue be known as “drawdown pension”

a. Capped Drawdown – to age 75 with income limits equal to 100% of annuity rates set by HMRC, reviewed every three years before age 75 and every year from age 75

b. Flexible Drawdown – unlimited pension drawdown can be taken subject to a Minimum Income Requirement (MIR)

The Minimum Income Requirement (MIR):

  • Minimum Income to access Flexible Drawdown = £20,000 p.a. (must be a secured pension income annuity, level or increasing)
  • There will be no capital alternative to the MIR
  • The level of MIR is to be reviewed at least every five years.

3. Individuals currently in ASP or USP pension drawdown on 6th April 2011 will have been subject to the new drawdown pension limits from their next review date

4. Pension Commencement Lump Sum (the tax free cash lump sum) and Value Protection e.g. guaranteed return lumps on death for an early death annuity will not have to be taken by age 75

5. On death when in drawdown pension, the current options on death will continue

  • Spouse can continue with drawdown pension in own right
  • Other dependents can continue Drawdown in their own right
  • Pension fund can be crystallised with a tax charge of 55%
  • If death occurs after age 75, a 55% tax charge will apply

If you require some help please call Templegate on 01264 300125, 0845 833 8837, email info@templegatefinancial.co.uk or, complete our enquiry form.

Templegate Financial Planning Ltd is an appointed representative of Sage Financial Services Ltd, which is authorised and regulated by the Financial Services Authority. Sage Financial Services is entered on the FSA register (www.fsa.gov.uk/register) under reference 150452. The FSA do not regulate will writing services or some forms of mortgages and inheritance tax planning. The information and content of this website is intended for UK consumers only and is subject to the UK regulatory regime. Templegate Financial Planning Ltd. Registered Office: Winton House, Winton Square, Basingstoke, Hampshire, RG21 8EN Registered in England No. 04416499.