At Retirement

This is one of the most important moments in most people’s lives. It should also be one of the happiest. However, before getting there, there is a minefield of decisions to take and we believe it is best to do this with the assistance of a qualified professional who is experienced in the issues and pitfalls.

Some of the things to consider are:

• Should you take tax-free cash or not?
• Should you buy an annuity or keep your pension invested in an income drawdown or "third-way" scheme?
• If you take an annuity, what about spouse’s benefits, guarantee periods and allowing for inflation?
• If you take an annuity, the rate offered by your pension provider is unlikely to be the most competitive.
• How do you legitimately minimise income tax in retirement?
• Can you make use of capital gains tax exemptions in retirement?
• What about the retirement income tax trap for people whose retirement income is higher than about £22,000?

Income Drawdown

An option that many people haven't heard of is called income drawdown. This should be at least considered by all but the most cautious investors with, say, more than £100,000 in their pension pot at retirement. This allows their pension funds to remain invested and to draw a pension that can vary between limits defined by the government. Potential advantages of this arrangement are:

• You would keep control of the pension, the amount drawn and the investments.
• The pension funds can remain invested in assets that could provide better long-term returns than those of an annuity.
• This allows significantly more flexibility than an annuity and is especially important for people who might want to retire in phases.
• The death benefits in many cases would be better

Third Way

There are also "third-way" retirement options which act like income drawdown but would underpin the arrangement with certain guarantees that your capital and/or your income would not reduce, whilst allowing you to take advantage of any growth in the investments. This type of pension is very popular in the USA and Japan and has been growing in the UK in recent years.

It is all too easy to end up with a retirement arrangement that is less than the best simply by not being aware of the options available and how to avoid the pitfalls. It is vital to consult a capable independent financial adviser at the point of retirement. The Abbott Clarke Partnership has Chartered Firm status, the highest designation given by the CII to financial adviser companies. We can guide you through these options to develop the most appropriate, tax-effective solution.