Trustnet Magazine Issue 34 November 2017

IN THE BACK / PLATFORMS & PENSIONS / TAKING BACK CONTROL John Blowers highlights some of the major considerations for investors who want to take full responsibility for their retirement income A S RECENTLY AS 2014, MOST UK RETIREES found that the default – and least intimidating – method of deriving an income in retirement was to purchase an annuity. There are a number of different types of annuity but they all operate on the principle 26 that they will pay you a defined income until you die. The big advantage with an annuity is you know where you stand as it will last as long as you do. Yet the disadvantages are numerous and we have seen an 80 per cent decline in their popularity in the last three years. The key disadvantage is that as soon as you buy an annuity, you lose exposure to any market gains. An actuary will work out how long you are likely to live and divide up your pension pot to last over your predicted lifespan. Sometimes people live longer than these forecasts and sometimes for less, but actuaries are canny creatures and trustnetdirect.com will ensure they are unlikely to lose money on these products. Consequently, the income you will be offered from an annuity is likely to be far less than you will receive if you leave your retirement fund invested and draw down cash from your pot when you need it. The big life and pension companies – which previously offered annuities to customers at retirement – are now focusing on offering drawdown solutions. It would be wrong to make sweeping assumptions, but it is worth being aware that pension company charges can be higher than investing the money yourself. Most pension companies invest in third-party funds and consequently there is an extra layer of costs that inevitably gets passed on to the customer. trustnetdirect.com Robo advice can be very useful if you notice that you have started walking into a room, but aren’t quite sure why Additionally, just like in the bad old days of annuities, it can make a massive difference if you shop around when you approach retirement. Most retirees used to accept the annuity offer from their incumbent pension provider rather than looking at the entire market – often cheating themselves out of thousands of pounds. The same principle applies when you enter drawdown. You should conduct thorough research into the charges that your pension provider levies and look around the market to see if you can obtain the same service for less. It is worth highlighting how important the effects of annual charges are to your pension. At retirement, your pension pot should be at its zenith. I can’t stress enough that every fraction of a percentage point you can save in charges will make a big difference to your ultimate returns. 27

Trustnet Magazine Issue 34 November 2017 | Page 28