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Annuities / Drawdown

With the ever changing rules when you take money out of your pension at retirement, it means that taking expert advice is more important than ever. If you are like most people then buying an annuity will represent one of the most important decisions of your life, as well as being one of the most expensive single purchases you make. An annuity isn't the only option open to you, though, and with annuity rates at a historic low it makes sense to look closely at the alternatives.

What is an annuity?

The simplest way to look at an annuity is that what you are doing is selling your entire pension fund to an insurance company who in return promise to provide you with a certain level of income until the day you die.

What about the alternatives?

For most people the key alternative product to consider is Drawdown. Like an annuity the idea is to provide you with an income throughout your retirement. Unlike an annuity you don't sell your pension fund, it continues to be managed and invested. Meanwhile you take your income directly from your fund. Drawdown provides a great deal more flexibility than an Annuity as your pension fund still belongs to you. You can vary the income you take when you want to and when you die your fund can be passed down to your beneficiaries. The risk is that your pension does not grow sufficiently to replace the money you take from it. Regular reviews with a financial adviser can help potentially minimise this risk, and you still have the option of using your fund to buy an Annuity at any time in the future.





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