Boosting your retirement income

Shopping around to get the best deal

When you decide to take benefits from your pension savings, you are not obliged to purchase an annuity and take your retirement income from the company that you hold your pension fund with.

An ‘open market option’ enables you to transfer your accumulated pension fund to another insurance company, which allows you to shop around to get the best deal. Utilising the ‘open market option’ could mean that you are able to find a better annuity rate and, therefore, secure more income during your retirement.
Annuity rates can vary considerably between providers. Even within one provider, the rates can differ according to the annuity option chosen. You have to remember that purchasing an annuity is a one-off decision, so it should be made very carefully and only after taking professional advice. Once you have purchased an annuity, you cannot then move to another provider.

In addition, your current pension provider may not be able to offer you the type of retirement income or the retirement product you require.  For example, not all insurance companies have income drawdown products or may impose fund size restrictions above your fund value.

The ‘open market option’ is not available for every plan or scheme. You may be restricted by the size of your pension fund, as some companies will only allow you to purchase an annuity if your fund is above a certain size.

You don’t have to purchase an annuity at age 75 in the current market. Another option, for those willing to look at investment risk, is to purchase an ‘alternatively secured pension’ (ASP). This is an alternative to an annuity purchase and is only available to those aged 75 and over.

The maximum income you can withdraw is about 90 per cent of a level single-life lifetime annuity and the minimum is 55 per cent

These limits must be reviewed every year

Regardless of your actual age, the maximum income will be based on age 75

In the event of your death while in an ASP, any unused funds are subsequently used for the benefit of a spouse, civil partner or financial dependant. There will usually be no immediate charge to Inheritance Tax (IHT). However, if on the subsequent death of that person there are still unused funds remaining, those unused funds will be taxed for IHT as if they had formed part of the original pensioner’s estate on death.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.