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Home » Understand Money » Pensions: Are You Missing Out?

Pensions: are you missing out?

Will your provider offer you both income options on your pension when you StopWork?

Over your working life, you build up money in a number of areas.  But who owns YOUR money?

Save in a bank, invest in stocks and shares or ISAs, and you can cash them in and get money back. Buy a property, and you can sell it and get money back. 

Clearly, you own your money. But what about your pension fund?  

When you StopWork and draw the benefits, the vast majority of people buy an annuity. 

Can you get your money back? No. And if you don’t live very long, you probably won’t do very well from the money you saved throughout your working life.

An annuity isn’t necessarily bad. You have a variety of choices open to you. It provides a guaranteed income for life. And you’re not affected by the ups and downs of the market. But there is a problem.

You only have one bite of the cherry. The annuity you buy cannot be altered. In fact, it might be one of the only things in life you can’t change. 

You can change your clothes. You can change your spouse. You can even change your sex. But you can’t change your annuity.

You could live for 25 years after you StopWork. Think about this. Could you have made a financial decision 25 years ago that would still be right for you today? There is an alternative. 

Instead of buying an annuity, you can leave the money invested and draw an income from it.

It’s very flexible. You can vary your income in line with your needs. Take less when you first StopWork. And when things cost more, increase your income. You can alter your income to suit your tax position. After all, there’s no point in having a large payment if you end up paying lots of extra tax.

There is a limit to how much income you can draw. It’s not dissimilar to the income you’d get from an annuity. And it could be higher.

 

Can you get your money back?

  • Bank
  • Stocks and Shares
  • ISAs
  • Property
  • Pension Fund

Sounds too good to be true? Well, there are downsides. 

You don’t get the guarantees you get with an annuity. If the value of your money falls, your income could reduce too. And if you take too much out, you’ll erode your fund. It could run out altogether if things go badly wrong.

But there is another benefit. As your money remains invested, you can pass it on after you’ve died. Currently, the taxman takes 35% if you’re under 75. But with an annuity, your family gets nothing. 

So they could be thousands of pounds better off if you choose income withdrawals.

 

Why leaving your money invested could be worth thousands more to your estate than buying an annuity.

Fund value £100,000.

Income Withdrawals

On your death, the taxman takes 35%, leaving £65,000 for your estate.

Annuity

On your death, your estate receives nothing.

Incredibly, insurance companies don't have to offer you both options. Even though pension rules say you have the right to a choice.

Look at the table to see what our research has found.  It's just a selection. There are other providers that may also limit your choice.

If you want the option to keep control of your money when you StopWork, rather than being forced to buy an annuity, you should check your pensions now.

Contact us for a review »