PLATFORMS
A “HYBRID” PLAN
Retirement Age
Flexi-Access Drawdown
WE’RE LIVING LONGER
AND YOUR PENSION MAY
NEED TO LAST LONGER
THAN YOU ORIGINALLY
THOUGHT
Annuity
UFPLS
55
60
65
70
75
80+
Age
WHAT THE DIAGRAM ILLUSTRATES
worked out what they would pay
out each year (or monthly) in each
scenario.
This makes a great case for flexiaccess drawdown, but remember
the assumption of 5 per cent
growth net of charges every year
may be a tall order and even then
your money will run out when you
are 78.
There is also the dilemma of
having a greater income for a
potentially limited period, versus
the security of having a lower
income guaranteed for life.
The other downside is you may
spend your twilight years managing
your retirement pot to keep it
performing.
Large retirement pots lend
themselves better to flexi-access
drawdown as it is not such a battle
to avoid running out of money, but
smaller pots may benefit from more
of a hybrid approach.
Pensioners should consider
buying an annuity, but later in
retirement, when the actuarial odds
are stacked against you a little more.
Buying an annuity at 75, or even
80, should result in a much bigger
income than when you are 65.
trustnet.com
David is in a job and still contributing to his SIPP. At 58, he decides to treat himself
to a classic car, so uses his uncrystallised funds pension lump sum (UFPLS)
mechanism to take out £50,000 of his pension, of which 25 per cent is paid tax-free.
The remainder of his pension remains untouched, that is to say he is not entering
drawdown, as he intends to carry on working until he is 65.
At 65, he retires and commences flexi-access drawdown (again he can access 25
per cent of this tax-free), realising he may not have enough money to last if he lives
beyond 80. Still in good health, he chooses to buy an annuity at 77 years old, where
his age allows him to buy an attractive income for life. He buys the annuity from
some of the capital remaining in his pension. If he had bought an annuity at 65, the
income he would have received would have been significantly lower from the outset.
ANNUITY RATES
Pension pot
Annual income
Monthly income
£100,000
£5,237
£436
£250,000
£13,106
£1,092
£500,000
£25,105
£2,092
£999,999
£50,044
£4,170
Source: www.saga.co.uk as at 08.06.15. (excludes any tax deductions)
EQUIVALENT FLEXI-ACCESS DRAWDOWN (EXCLUDING TAX)
Assuming money runs out at age 78 (actuarial average male life expectancy)
growing at 5% a year net of charges
£100,000
£10,200
£850
£250,000
£26,400
£2,200
£500,000
£52,800
£4,400
£999,999
£105,600
£8,800
Source: Trustnet Direct as at 08/06/15 (excludes state pension)
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