Know Your Annuity & Pension Options – Pensionfinder
All UK citizens who reach retirement age are eligible for a state pension. The state pension age is set at 65 for men at present and 65 for all women who were born after 1955. This is set to increase in the next few decades with a potential retirement age of 68 mooted. There is no set pension amount because it depends entirely on the national insurance record of each individual. The state pension for the tax year 2016/11 is £97.65 per week for a single person with married couples receiving £156.15 weekly.
Anyone who has been employed in the State Second Pension (S2P) or State Earnings Related Pension (SERP) schemes are entitled to a second pension from the state. It is also possible for citizens over the age of 60 to benefit from extra Pension Credit thought this is only applicable to those who earn less than a certain amount per annum. As you can see, the state pension will barely pay the bills and does not provide for a comfortable retirement. It would be a shame to spend a lifetime working hard only to find that your twilight years are a bleak struggle. This is why it is essential to have a plan to increase your pension pot.
A common misconception amongst those with no knowledge of how pension payments work is the belief that they can simply withdraw their money as they choose. This is not the case. Most pension plans allow for a single withdrawal of a tax-free sum which is 25% of the total amount contained within the pension. After this money has been taken out, the remaining income is considered to be taxable income and deemed to be a separate contract. At this stage, possibilities like income drawdown and annuities present themselves.
Before the end of the 2016 tax year (6 April), it was possible to take retirement benefits at the age of 50 but the law has changed and now you are not allowed touch your pension pot before you turn 55. The aforementioned annuity is one of the most reliable ways to secure your pension income. Essentially, you purchase a lifetime annuity and it pays you a regular income for the rest of your life. Contrary to popular belief, it is not necessary to purchase an annuity by the age of 75 though it would be a prudent measure.
Other available annuities are ones that are linked to investment. These offer a potentially higher rate of return but also carry the sort of risk one would associate with the stock market. Other pension choices include Phased Retirement, a Variable Annuity and an Alternatively Secured Pension.