Annuity Planner...

Skip straight to annuities comparison enquiry (for funds under £30,000 please visit Annuity Answers)

Unsecured Pension/Income Drawdown/Phased Retirement

You can choose an unsecured pension as an alternative to an immediate annuity purchase. Unsecured pensions are sometimes also known as income drawdown or phased retirement.

With an unsecured pension, you can first take your tax-free cash element (it can't be taken later), and the balance would therefore remain in your selected pension fund. However, there is an exception to this in the case of phased drawdown, where your tax free cash and income requirements can be combined.

You can now draw down a chosen amount of between 0 and 100% of the calculated single person's annuity value for the remaining fund. The remainder can be converted into an annuity when you choose to end the arrangement. Unsecured pensions are definitely not a suitable option for all.

This type of plan is suitable for people who have a relatively large pension fund, usually over £100,000. It has a higher investment risk, as your investment includes equity based funds. This may be more suited to people wishing to defer taking their annuity, have another source of secure income such as a company pension, or wish to benefit from the greater flexibility and death benefits that this option provides.

The income levels available from the fund must be reviewed every 3 years to make sure they remain in line with HM Revenue and Customs limits.

In the event of the death of somebody in full drawdown, the spouse, partner or dependant would have a choice of doing the following with the remaining fund:

• Purchase a pension annuity using all of the remaining funds

• Continue with the unsecured pension/income drawdown arrangement using all of the remaining funds

• Taking the whole amount as tax free cash (subject to a 55% tax charge)

A potential advantage of deferring an annuity purchase by utilising income drawdown is that an annuity is based on your health at the time of purchase. Therefore if you were to suffer ill health during the drawdown period, you may then qualify for a higher annuity rate (an enhanced annuity) than you would have done when you entered the drawdown arrangement.

The disadvantage with income drawdown could be that if at the start you were drawing down the maximum income from the fund, you may have a lower amount left at the end (depending on growth) with which to purchase an annuity. You must also bear in mind that your pension fund may fall as well as rise.

There are two main types of Unsecured Pension
1) Capped Drawdown
2) Flexible Drawdown

Flexible Drawdown allows those with at least £20,000 per annum in guaranteed pension income to draw any level of income they require from their Drawdown fund. This may deplete the fund if high levels of income are taken, but does provide more flexibility, although it is important to remember that all of the income taken is subject to income tax.

Phased Drawdown

Phased income drawdown allows you to draw an income from part of the fund leaving the rest intact to grow. You can take your tax free cash at intervals instead of all at once. If your remaining fund grows, it will mean that you could have a larger tax-free lump sum than taking it all in one go. This may be suitable for someone who is still working and paying tax or maybe somebody working part-time who does not necessarily need their maximum income.

Phased income drawdown allows you to vary the amount of income that you receive from your pension. This gives you some flexibility if circumstances change. This also has an added advantage that part of your pension fund has the potential to carry on growing in a tax favoured environment.

It is essential that you obtain the appropriate level of advice before committing to this type of arrangement.

With Profits Annuities

With profit annuities are an investment linked alternative to a guaranteed annuity.

With profits annuities are unlike standard annuities where the fund is invested in gilts and the income level is guaranteed. The pension fund is invested in the with profits fund of the chosen pension provider. The future level of income is dependent on the investment performance of the chosen with profit fund. This means a with profit annuity can involve a higher level of risk than a standard annuity, and your income could fall or rise depending on future bonus levels.

There is more flexibility available under a with profit annuity arrangement when compared to a standard annuity. For example, you are able to adjust your future income levels within minimum and maximum parameters should your circumstances change. For instance, a 62 year old male may have a greater need for income from their own pension arrangements for the next 3 years until they start to receive the state pension. They could therefore set the income from a with profit annuity at a high level for that period, before reducing the income once they start to receive the state pension.

Variable Annuities / Third Way Annuities

Although conventional annuities provide a guaranteed income, they're not flexible. You have to lock into current interest rates. Variable annuities offer a mixture of income and capital growth benefits.

You will receive some income guarantees, but these provide less protection than the guarantees of conventional standard annuities.

Variable annuities can also provide you with investment growth potential. If you choose a conventional annuity you lock into the current gilt yields which under pins your guaranteed income, but with variable annuities it's possible to participate in any possible future growth.

Third way variable annuities aim to supply a level of secured income from an annuity whilst combining some of the flexibility of unsecured pensions (also known as income drawdown).

As these types of annuity product vary widely, it is important for you to ask a qualified annuity adviser for further information.

It is also important to ask the provider how strong the guarantee is if the company runs into financial trouble.

Take action now

YOUR ENQUIRY IS COMPLETELY FREE

Contact a professional independent annuity planner now by completing our quick and easy, confidential, NO-OBLIGATION annuity enquiry.