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Retirement And Immediately Pre Retirement 3
Serious Health problems
There are various strategies to deal with this situation.
1) If retirement is soon but still some years in the future, consider putting your savings into non-pensions products such as ISAs. The money will then be outside the pensions regime and if your spouse needs to have an income he or she can still buy a Purchased Life Annuity and most of the income will be tax-free.
2) Take your pension now but do not buy an annuity and take an income through an income drawdown facility.
3) Take you pension and buy an annuity through an insurer offering enhanced terms to impaired lives.
4) Delay taking your pension but make sure any pension policies provide you with a death benefit of the full fund. However be aware that the Inland Revenue can take the view that you have tried to reduce the value of your estate and charge Inheritance tax anyway. Some old policies only provide a return of premiums. If yours is like this, consider a transfer to one which gives better death benefits, or if health problems are not that serious take that particular pension early.
5) For members of pension schemes it is worth at least considering transferring out before retirement and buying an impaired life annuity. However you need to check that it is beneficial to do this.
6) Also for members of pension schemes investigate the option of reducing your pension in return for an enhanced widow’s or widower’s pension.
7) See options for lives in average to poor health.
Average to Poor Health
This is necessarily a difficult one because things can go either way. Again there are options ,some of them are the same as for serious ill health, such as having some savings outside the pension regime and there is always income drawdown. At least these give you flexibility until things clarify themselves. However taking income drawdown means that you are forfeiting the subsidy to your income from other annuitants who die early and you are taking the risk that annuity rates will be worse than they are today when do come to buy one. On the other hand interest rates might increase and annuity rates might improve. At the moment my view is that inflation and interest rates are likely to rise and consequently annuity rates will improve but that is an opinion and may well be wrong.
The other option for a personal pension holder is to take an annuity immediately after taking maximum cash but make sure that the annuity is level and if possible make sure that it includes a widow's or widowers pension of 100% of the members pension. If you are single or your partner is also in poor health a guarantee term of ten years is or capital protection is a poor second best option but at least the annuity will continue to be paid for ten years even if you die tomorrow. Unfortunately you won't be alive to enjoy it. It should be noted that this lump sum death benefit can only be paid if death occurs before age 75.
A level pension provides no inflation protection but it does mean that you get as much money as possible out of your pensions pot as quickly as possible. The sponces pension also means that she is protected. It also reduces the subsidy you provide to more longer-lived annuitants. However if you survive, it creates a little bit of a fool's paradise as you initially appear to have a good income but the real value of that income will decline year on year as inflation bites. However, you could save the difference between your actual pension and the one you would have got if you had made it index-linked..
Taking a level pension is particularly attractive if you have a number of small policies and you want to do amalgamate them into a single annuity. The sums of money involved might not justify doing anything complicated or carrying on with the policies. This solution can also be particularly useful for those old policies with good guaranteed annuity rates and poor death benefits.
Average to good health
Take the cash but note the comments about when this is not the best option. The low risk option is then to take out buy an index linked annuity making suitable provision for your partner, possibly with a 50% or 67% spouse’s pension. You are then set for life. Shop around for the best annuity. Your current insurer probably does not offer the best annuity rates in the market.
Another option would be to take an annuity that escalates at a fixed rate. In this case the pension increases at a fixed rate that is independent of inflation. This is risky because whatever fixed rate you choose, inflation over the next twenty or thirty years could be higher than the escalation rate. On the other hand the fixed escalation rate might cost less than indexation and inflation could turn out to be less than the chosen escalation rate.
However, we are now in new financial world. In the short term the outlook might be for low inflation but governments are taking on a lot of debt and inflation is one way to reduce that debt. In the long term if serious inflation does come any fixed rate escalation may not be enough to cover it. On the other hand we might be in for a long depression with low or even negative inflation.
Buying an annuity is not necessarily the option which maximises your return in the long term. Index-Linked annuity rates may improve if yields on index linked Gilts rise and annuity rates for level and fixed escalation annuities could improve if interest rates on conventional Gilts rise. Once you have bought an annuity you are locked in.
At age 65 the subsidy from deaths is only about half a percent, and your chances of improving on gilt yields are not bad. Income drawdown would allow you to delay the purchase of an annuity and enhance investment returns in the meantime. Alternatively you might only realise some of your pension policies and adopt a phased retirement strategy. However, you are taking a risk and as with most things financial the more money you have the better you can afford to take risks and visa versa.
If funds are sufficient you might wish consider having some money to outside of your pension arrangement to provide for the younger generations in your family but this is covered a little more fully in the post retirement section.
There are various strategies to deal with this situation.
1) If retirement is soon but still some years in the future, consider putting your savings into non-pensions products such as ISAs. The money will then be outside the pensions regime and if your spouse needs to have an income he or she can still buy a Purchased Life Annuity and most of the income will be tax-free.
2) Take your pension now but do not buy an annuity and take an income through an income drawdown facility.
3) Take you pension and buy an annuity through an insurer offering enhanced terms to impaired lives.
4) Delay taking your pension but make sure any pension policies provide you with a death benefit of the full fund. However be aware that the Inland Revenue can take the view that you have tried to reduce the value of your estate and charge Inheritance tax anyway. Some old policies only provide a return of premiums. If yours is like this, consider a transfer to one which gives better death benefits, or if health problems are not that serious take that particular pension early.
5) For members of pension schemes it is worth at least considering transferring out before retirement and buying an impaired life annuity. However you need to check that it is beneficial to do this.
6) Also for members of pension schemes investigate the option of reducing your pension in return for an enhanced widow’s or widower’s pension.
7) See options for lives in average to poor health.
Average to Poor Health
This is necessarily a difficult one because things can go either way. Again there are options ,some of them are the same as for serious ill health, such as having some savings outside the pension regime and there is always income drawdown. At least these give you flexibility until things clarify themselves. However taking income drawdown means that you are forfeiting the subsidy to your income from other annuitants who die early and you are taking the risk that annuity rates will be worse than they are today when do come to buy one. On the other hand interest rates might increase and annuity rates might improve. At the moment my view is that inflation and interest rates are likely to rise and consequently annuity rates will improve but that is an opinion and may well be wrong.
The other option for a personal pension holder is to take an annuity immediately after taking maximum cash but make sure that the annuity is level and if possible make sure that it includes a widow's or widowers pension of 100% of the members pension. If you are single or your partner is also in poor health a guarantee term of ten years is or capital protection is a poor second best option but at least the annuity will continue to be paid for ten years even if you die tomorrow. Unfortunately you won't be alive to enjoy it. It should be noted that this lump sum death benefit can only be paid if death occurs before age 75.
A level pension provides no inflation protection but it does mean that you get as much money as possible out of your pensions pot as quickly as possible. The sponces pension also means that she is protected. It also reduces the subsidy you provide to more longer-lived annuitants. However if you survive, it creates a little bit of a fool's paradise as you initially appear to have a good income but the real value of that income will decline year on year as inflation bites. However, you could save the difference between your actual pension and the one you would have got if you had made it index-linked..
Taking a level pension is particularly attractive if you have a number of small policies and you want to do amalgamate them into a single annuity. The sums of money involved might not justify doing anything complicated or carrying on with the policies. This solution can also be particularly useful for those old policies with good guaranteed annuity rates and poor death benefits.
Average to good health
Take the cash but note the comments about when this is not the best option. The low risk option is then to take out buy an index linked annuity making suitable provision for your partner, possibly with a 50% or 67% spouse’s pension. You are then set for life. Shop around for the best annuity. Your current insurer probably does not offer the best annuity rates in the market.
Another option would be to take an annuity that escalates at a fixed rate. In this case the pension increases at a fixed rate that is independent of inflation. This is risky because whatever fixed rate you choose, inflation over the next twenty or thirty years could be higher than the escalation rate. On the other hand the fixed escalation rate might cost less than indexation and inflation could turn out to be less than the chosen escalation rate.
However, we are now in new financial world. In the short term the outlook might be for low inflation but governments are taking on a lot of debt and inflation is one way to reduce that debt. In the long term if serious inflation does come any fixed rate escalation may not be enough to cover it. On the other hand we might be in for a long depression with low or even negative inflation.
Buying an annuity is not necessarily the option which maximises your return in the long term. Index-Linked annuity rates may improve if yields on index linked Gilts rise and annuity rates for level and fixed escalation annuities could improve if interest rates on conventional Gilts rise. Once you have bought an annuity you are locked in.
At age 65 the subsidy from deaths is only about half a percent, and your chances of improving on gilt yields are not bad. Income drawdown would allow you to delay the purchase of an annuity and enhance investment returns in the meantime. Alternatively you might only realise some of your pension policies and adopt a phased retirement strategy. However, you are taking a risk and as with most things financial the more money you have the better you can afford to take risks and visa versa.
If funds are sufficient you might wish consider having some money to outside of your pension arrangement to provide for the younger generations in your family but this is covered a little more fully in the post retirement section.
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