These approaches clearly only suit savers with larger pension funds – enough to pay for an annuity to cover the basics and have cash left over. This allows you to wait to see if annuity rates improve, and potentially take advantage of better rates if your health deteriorates as you grow older. Drawdown first and annuity in later life.This can provide a guaranteed income for a set period, normally between three and 20 years, after which you decide whether to buy a different type of annuity or take a variable income or a lump sum from the amount returned to you. Fixed-term annuity until state pension age.Other 'hybrid' drawdown and annuity strategies include: They can draw income as and when they need it – for big-ticket purchases or travel, perhaps – but the rest of the fund remains invested, hopefully appreciating over time, and remaining available to beneficiaries. The rest of the fund is then moved into a drawdown arrangement and invested as the saver sees fit. The idea is simply that savers use part of their pension funds to buy an annuity income that covers their basic living expenses in retirement this guarantees their financial security. Increasingly, however, financial advisers are arguing in favour of a hybrid approach that combines the two, something that is entirely in line with pension rules. The choice for savers at retirement is usually presented as binary: they either use their pension funds to buy an annuity offering a guaranteed income for life, or they take out a drawdown plan, leaving their savings invested and drawing a pension income directly from it. MoneyHelper’s price-comparison tool is at least a step in the right direction, and comparing some providers is arguably better than blindly using the drawdown service offered by a saver’s current pension provider. But it knows that many savers are not heeding its calls. This is why the FCA urges savers coming up to retirement and considering drawdown to take specialist financial advice. Several factors come into play, from the investment options available through a drawdown scheme to the support providers offer as savers make key decisions. The schemes are complex products, with savers treading a fine balance between taking an income on which to live during retirement, investing to preserve and grow their capital, and ensuring their money lasts for as long as they need it to. The broader criticism of the tool is that cost should not be the only determining factor in savers’ choice of drawdown plans. Indeed, research published in 2022 by the consumer group Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pension pot was nearly £18,000 over a 20-year period. The tool itself underlines what is at stake, with the cheapest drawdown providers charging thousands of pounds less than their pricier counterparts. With so many providers excluded from MoneyHelper’s tool, pension experts warn that savers relying on its recommendations may be missing out on better deals elsewhere. Compare pension drawdown plans and charges The service only covers drawdown providers taking part in the FCA’s investment pathways initiative, under which savers are offered default investment funds according to a basic assessment of their circumstances and risk. This is either because these firms have opted not to take part, or because their products are not eligible.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |