Retirement Planning

A pension annuity is a contract in which you give up your pension pot fully or partially in exchange for a guaranteed regular income over a set term.

The term for your secured income can be anything from one year up to an entire lifetime. If you only need guaranteed income for a short period, or you would prefer not to commit to a lifetime annuity then you do not have to exchange your pension pot in one go and can instead use part of your pension pot to purchase a short-term annuity.

You need to consider your other assets that can provide you with retirement income and whether they are guaranteed. 

Income in retirement can come from many sources other than a pension such as rental income from property, investment income, direct/company shares, inheritance, and of course, any cash reserves you have.

The amount of income these can provide, and to what degree that income is guaranteed, can help build you a picture for your retirement provision and where a secured income can fit in. 

A good starting point would be to determine how much income you would need on an annual basis in retirement and whether you would prefer a guaranteed or non-guaranteed option, or a mixture of the two.

Without the right advice, it can be very difficult to firstly decide whether an annuity is the right option for you, and secondly to choose the best one. This is where one of our advisors can help to give you clarity, and will be able to offer possible solutions that are both unbiased and bespoke.

The ways of taking an income from your pension can be confusing.

If you want to take up to 25% of your pension as a tax-free lump sum, there are a number of different ways you can use your remaining pot to provide you with an income. One option available to you is income drawdown.

Income drawdown allows you to take a flexible income directly from your pension as and when you need it, whilst leaving your remaining pot invested. Under a drawdown pension plan you can control the frequency and amount of any income drawn to suit your needs, taking into account any tax liability.

You even have the ability to stop taking an income from your pension, either temporarily or permanently, in line with your requirements.

Funds held within a drawdown pension can also be used to purchase an annuity at any given point in the future, should you wish to do so.

One of the key benefits of a drawdown pension is that you can leave the funds invested, giving them the potential to continue growing.

Any income and capital gains generated by the investments with your drawdown plan are not subject to tax. This provides a tax-efficient home for your pension fund until it is required to provide an income.

You can access a diverse range of investments through your pension. However, most pension products will only offer access to a limited selection of these investments, so it is important to check with your provider.

It is important to be aware of the considerable risks inherent in certain investments. Making the wrong decisions could have a detrimental impact on your pension and the income you receive from it over time.

Guidance from Pentagon Wealth can help you choose the most suitable option for you by creating a personalised retirement plan, taking into account your personal circumstances and future aspirations. 

Should a drawdown pension be appropriate for you, we can guide you through retirement by conducting regular reviews of your long-term plan, including managing the underlying investments.