Tag Archives: Pension

Market Analysis

Pension Annuity Vital To Take The Open Market Option

Annuities are a form of insurance, called longevity insurance. A person buying an annuity with their pension savings has a guarantee that their pension will continue to be paid no matter how long they live after their retirement date. For most pensioners/retirees buying an annuity will be a better choice than income drawdown (unsecured pension), and under current rules it becomes compulsory at age 75. There is no obligation to take the annuity offer from the pension fund manager used when saving for the pension, in fact shopping around for the best annuity rate using the open market option will often yield more retirement income.

Many people feel confused by annuities, and simply go with the first deal they are offered, which will be from the company they used when saving for their pension. This is quite unfortunate, as research has shown that annuity rates can vary by up to 40 per cent between providers.

Each retiree must make a number of decisions about what to do with their pension fund on retirement. According to the current legislation, these decisions must be made between the ages of 55 and 75.

Part of the pension pot may be withdrawn immediately as a tax free lump sum. This is normally limited to 25 per cent of the total, although those with very small funds are allowed to withdraw 100 per cent. The remainder of the fund can then either be slowly withdrawn, or an annuity can be purchased.

The first of these options is often called income drawdown, although the latest official name is Unsecured Pension (USP). The problem with USPs (over the longer term) can be seen in the case of a pensioner who chooses to take 5 per cent out of his fund every year. If he then lives for 20 years after retiring, he will have no pension left to live on.

So, although income drawdown/USPs are permitted under the rules, it is always recommended that regular financial advice should be taken. Normally there will be a point at which purchasing a pension annuity becomes the best option, and under current rules annuities must be purchased at age 75.

Most people will receive a pension annuity offer from their pension fund provider when they reach retirement age. The pension annuity is a type of insurance policy, basically it is insurance against living too long and running out of money (longevity insurance). Annuities give a guaranteed income for life, in return for the retiree’s pension savings.

Annuities are provided by life assurance firms, and it is the life firm that bears the risk that the pensioner may live for a long time after retirement. In this case the firm will lose money, as they will have to pay out more money than they received originally, but for them that is balanced by other pension annuity customers who die earlier than the average time.

General Investing

Income Drawdown- “Secure Your Old Age With The Unsecured Pension”

Income drawdown can also be termed as unsecured pension. This is a facility by which you can carry on keeping your retirement savings invested, and at the same time you can take an income each year rather than buying an annuity. Annuity is a policy which gives you an income after your retirement. Your residual amount will be invested in this arrangement of income drawdown.

You can buy this facility till you are 75 years old not after that. When you reach 75 you have to buy an annuity or you can transfer your money into an alternatively secured pension.

The amount or income that can be drawn from this scheme differs from year to year between a maximum and a minimum. The minimum can be 0 and the maximum is 120% of a pension calculated through tables provided by the governmental department of actuaries. These tables are based on the amount your money can buy as an annuity. It is based on your life only and you can’t increase the amount in the future. The maximum amount is recalculated after every five years.

There are certain advantages you can enjoy from this kind of arrangement. You can choose to buy the pension when the annuity rate is up to your liking. If growth is achieved from the invested residual fund and if the annuity price increases with your age you can buy a higher pension than the one you had bought in the beginning. Your residual fund will be returned after your death under this kind of pension which many other companies do not.

You cannot contribute to your income drawdown

If you die before the age of 75 your dependent or your wife will have three different option of getting back the money. They can take back a lump sum amount of the money which is taxable in the tune of 35%. They can continue with the income withdrawal or else can buy an annuity. A dependent’s pension can be delayed to a later date depending upon terms, rules of the policy.

The income obtained from the fund may get reduced if the investment growth on the residual money is not good. Though the level drained is monitored yearly. You don’t have the guarantee that you will get more money ultimately than the amount you had invested in the beginning.

The fund needed is in the tune of $100, 000 before you can start withdrawing your pension. This may look a bit heavy amount but you have to meet up the administrator’s charge, you may have to part with investment management fees.

You can transfer your assets in this arrangement from other plans or stakeholder schemes provided all terms and conditions are fulfilled.

On the basis of the points discussed it should be crystal clear to you that advantages in this kind of arrangement are more as compared to the disadvantages. You can definitely think of investing your money in this scheme to secure a better future.

Market Analysis

Protect Retirement Accounts And Eliminate Inflation Worries With a Guaranteed Income Pension

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Many people are worried about inflation in the near future and how this can affect our cost of living. Oil and energy are on the rise and with interest rates at a all time low. This is a valid concern that needs to be addressed. Those of us that are in the work force today should be concerned with inflation, however it will not have as much devestating affect us than on those that are retired or soon to be retired. If inflation goes up, so will our income. Retirees on the other hand have a set limited income base on which to live on and inflation can cause them to make major adjustments. If retirees have their money in the market they are exposed to the huge up and down swings the market has been experiencing the past few years. Alway remember that the market is a gamble, it has potential to grow fast, however it also has potential to have huge loses. Do you want to put your nest egg in this type of predicament.

I would strongly recommend against this strategy.If retirees have money in a bank CD, they have seen their return go from 5% to 1.5% in the past 5 years. Not a good source for income if you interest keeps dropping so does your income. Example a $100,00 CD at 5% payes $5,000 a year in interest, the same CD at 1.5% pays only $1,500 per year. If you were relying on your interest as a source of income, you income dropped from $5,000 a year to only $1,500. Thats why we recommend to consider a guaranteed pension style income. This type of retirement plan eliminates the worries about inflation, stock market volatility and low interest rates. You know that once you retire you will get a guaranteed paycheck for as long as you live. Knowing exactly how much money you can count on every month will make it easy for you to design the retirement life you want.

This year with the new law that allows us to rollover our qualified IRA’s and 401(k)’s into a Roth, with two years to pay the taxes owed. This will make retirement even better if no income tax has to be paid on income from our retirement accounts. So for some not all, you can roll over you retirement accounts into a tax-free retirement account, develope a pension with this money were you will recieve a guaranteed income check for the rest of your life and that money in turn will be also tax free.