Retirement OptionsWhy would I consider using an alternative to conventional annuities?
The main reason that people consider alternatives to conventional annuities is the desire for one or more of the following features;
Continued investment – If you would prefer your pension fund to remain invested so that you may have the possibility of a higher initial pension or rising income over the longer term.
Conventional annuity purchase deferral- If you have an expectation that conventional annuity rates will rise in the future you may wish to avoid locking into a rate now and/or you expect your health to deteriorate and you could qualify for enhanced terms.
Below you will find a quick overview of the main product categories available at retirement.
Investment- Linked Annuities
Investment linked annuities are designed to give you the opportunity to obtain an income that increases during your retirement. Unlike conventional annuities, the income is linked to an underlying investment fund so these annuities carry ongoing investment risk. It is important to note that there are no guarantees and income can go down as well as up.
Flexible / Temporary Annuities
These products are very new to the market and are only offered by a few providers and although we have grouped them into one category, these products can be very different to each other. They range from those that purchase temporary annuities for five year periods, to those that offer a guaranteed minimum level of ongoing income and /or a guaranteed minimum fund value or death benefit until age 77.
Unsecured Pension (USP) - Income Drawdown
USP allows you to draw a taxable income each year directly from your fund, leaving the remainder invested. It is available up to age 77. Its advantages include control in respect of ongoing investment and the timing of annuity purchase, income flexibility and improved death benefits. Although this may have many attractions, it carries greater risk and is not suitable for everyone.
Important
These alternative products are far more complex than a conventional lifetime annuity and therefore require full advice. For these reasons they can also be more costly to run.
Should you wish to explore any of the alternatives to conventional annuities we would be pleased to offer you independent financial advice.
