What pension is right for you?
Looking to spend your pension savings on an income for the rest of your life - how do you know which one is right for you?
There are lots of options to think about when you retire and a number of insurance companies that will be able to provide you with a pension. Some of the most common options are shown below.
Your fund value will be passed to the insurance company of your choice to set up your annuity. This cannot be done until all your contributions have been received and your fund disinvested. Therefore, please remember that there will be a delay in receiving your pension.
Do you need...?
Something for your dependants... Joint life annuities
These continue to provide an income for your dependants after you die, usually at a lower rate than your annuity. They will cost more than a single life annuity as they are expected to be paid for longer so your initial pension will be lower. Remember if your dependant has their own pension they may not need an income from your pension.
Regular increases... Increasing annuities
These annuities provide a smaller income when you initially retire, compared to level annuities (see below). However, the amount you will receive increases each year either at a set percentage or in line with inflation.
A level income... Level annuities
These annuities provide a higher income than increasing annuities (see above) when you first retire. They provide an income that stays at the same level year on year so they will decrease in value as inflation rises.
Something for at least a minimum amount of time...
...annuities with a guaranteed period. These annuities guarantee to pay out for a minimum period of time. This is usually for 5 or 10 years. This means that if you were to die within this period your annuity would still be paid, usually to your beneficiaries. If you live beyond the guaranteed period your annuity will continue to be paid to you until you die.
Other annuity options
There are a number of other annuities on the market that are for specific circumstances, for example enhanced annuities for smokers and impaired life annuities for people who have a reduced life expectancy due to medical conditions.
Something different to a pension... Income drawdown
Income drawdown is an alternative to an annuity. If you have a significant (usually at least six figures) savings pot you may wish to consider this option. Instead of using your pot of savings to buy an annuity you can transfer it to an income drawdown provider where you can then take an income direct from your savings. Your savings stay invested so they might still grow in value, but there is also a risk the value could fall.
You should talk to an Independent Financial Adviser if you are considering income drawdown.
You can find out more about the type of annuities available on The Pensions Regulator's website.