Up until the Budget, annuities were the main option for those who wanted to turn their defined contribution pension scheme into a retirement income. And then annuities were taken off the table, or were they?
The greater flexibility announced by George Osborne seemed to sound the death knell for annuities. But have we been too hasty to write off annuities and can they still form a part of our planning?
Annuities in the new world
An annuity guarantees you a retirement income for the rest of your life, but you can’t change your mind once you go down this route and usually your money won’t be passed on to your family should you die ‘early’.
The pension changes have brought other options into play – affordable income drawdown will let you keep your money invested and take it out as you wish, while you can also take the lot as cash subject to your marginal rate of taxation.
Annuities haven’t been helped by the low rates of the last few years and the fact that some people have signed up to poor deals due to the difficulty of shopping around.
Over the past week, however, the appeal of annuities may have been revived…
Annuities back on the agenda
The Government is going to change tax rules to let you vary the amount of income they pay and allow you to take a lump sum from an annuity.
A further change initiated by the Government will also make sure that your pension fund is returned to your family when you die.
Meanwhile, a report from the International Longevity Centre has shown that annuities offer fair value for money and should still play a key role in most people’s retirement planning.
Part of your pension planning
The fact that you have more options now doesn’t necessarily make it easier to decide what to do. The new free guidance should help you to plan, but you’ll still have to decide how you’re going to access your money.
We’ve had some Which? members contact us to say that they’ve gone through with an annuity purchase, despite being able to defer the decision, as it’s still the best option in their opinion.
Are you currently considering your retirement fund? What’s your view of annuities? Would you still opt for an annuity as a way to ensure a regular income for the rest of your days?
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