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.