Personal Pensions / SIPPs
Broadly speaking, when taking benefits from personal pensions or SIPPs, there are two main options. The first is income drawdown and the second is purchasing an annuity. As with most pension related choices, there are a number of further choices to be considered with regards to both drawdown and an annuity purchase.
> INCOME DRAWDOWN
With income drawdown, your capital remains invested and you can cash in part of your pension pot on a regular or ad hoc basis to provide yourself with income or lump sums as and when you need them.
You will also have access to 25% of your pension as a tax free lump sum. You can use income drawdown for as long as you like and at any time you can use the remaining pension pot to buy an annuity. The change in legislation in 2015 means that a great deal of the restrictions in terms of the amount you can take from your drawdown plan have been removed. This still leaves the pensioner with a number of decisions concerning tax, capital erosion, the structure of the investments and the ongoing management of the investments. Although legislation may be supportive of improved access to pension funds, a great many legacy products may not be able to provide this facility so it is worth looking at our page on pensions consolidation.
An annuity is effectively an investor buying a guaranteed income from an insurance company with their pension fund.
Generally speaking, once an annuity has been purchased, the pensioner is committed for life and the decision cannot be changed. As with drawdown, the pensioner is allowed to take 25% of their pension tax free. Consideration must be given to whether the individual requires the income to increase in line with prices, if they would like benefits to be payable to their spouse on death, if they would like a guaranteed period that the payments will be made after death and also the state of their health.
Most providers send their members annuity quotes when they reach retirement age. This is usually just the rate the provider themselves will quote. It is also possible for individuals to opt for an ‘open market offer’ which will provide them with a quote from the whole of the market which, as such, may be more competitive.
At Churchill, we are happy to provide investors with quotes so they can make an informed decision and ensure they are getting the best deal available.