Historically when saving for retirement, payments were made to a pension plan and when we finished work, the pension provider may have paid out a lump sum and then a pension (also known as an annuity), which would provide you with additional income throughout your retirement. However, as widely publicised in the press, over recent years the amount of income provided by pension funds has fallen as a result of lower annuity rates.
The rates have been reducing due to a number of factors from increased life expectancy to the effects of current economic policy, and each provider assesses these differently.
Currently, for a male in good health reaching the current state pension age of 65, with a pension fund of £100,000, depending upon the pension provider, he could typically receive an annual income of anywhere between £4,954 up to £6,120.
For a female in good health, the equivalent pension range is just £4,488 to £5,840.
Many commentators have been stating that annuities do not currently offer 'value for money’ and references are made to how much could have been obtained from an equivalent sum three or five years ago. That can only be said with hindsight. The world is a different place now and in a few years time the same commentators could find themselves saying the same thing of today’s rates. With further legislation coming into effect from the end of the year which will ultimately lead to an equalisation of rates for men and women, annuity rates are likely to fall further, particularly for males.
With the post world war two “baby boom generation” reaching their retirement, an increasing number of individuals are going to be met with the decision of how to use their lifetime savings to best meet their retirement needs. Securing an income through an annuity will continue to meet a number of individuals needs, however there are also a number of other methods as to how pension income can be paid, from Capped and Flexible Income Drawdown, and alternative strategies such as Fixed Term, and Investment linked annuities.
When met with the challenge of working out how a lifetime of savings can provide you with the income in retirement, ensure that you take the time to fully examine your options as the impact of not doing so can potentially lead to you missing out on thousands of pounds worth of income, or exposing your income to risks with which you may not be comfortable.
If you are faced with this dilemma, then let us help you remove some of the worry out of the process and give us a call.