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Pensions are a complex part of personal finance planning. Paul Garwood discusses different ways to receive pension payments in this TV show.
When you reach retirement if you’ve got a pension plan and that pension plan is one that you’ve contributed to and has now grown into a fund, you don’t just have to buy an annuity with that fund.
And you tend to find that those with larger funds wouldn’t necessarily want to buy an annuity because it’s quite inflexible.
Once you’ve purchased an annuity, if you were to pass away very quickly thereafter, the annuity fund or your pension savings go to the annuity provider.
Furthermore when you purchase an annuity you may have to make a one-off decision regarding spouses’ pensions.
And if your spouse predeceases you, then again you’ve bought something you don’t need.
Also with annuities you may have to consider inflation at outset. And that’s quite a difficult call to make.
So what a lot of people do who have reasonably sizeable pots is they enter into income drawdown.Now, income drawdown enables them to dip into their pension plan and take out an income as and when they require it. And depending upon their circumstances, their income within that drawdown plan is capped at a specific maximum or sometimes it’s open-ended, you can actually take out as much or as little as you want from that plan, as and when you want. And the other thing to consider perhaps with less successful people or with people who I think less successful is not the right expression, but people who have got a more tighter budget when they get to retirement, they might want to phase in their tax free cash. Pension plans allow you to release 25% of the fund on retirement and historically a lot of people have used that, perhaps to pay off debt or to buy assets, notably overseas property perhaps. But I think we’re finding now that a lot more people are perhaps using that tax free cash to supplement their income. So they will phase it in over a period of years rather than taking it all in one go. __________________________________________________ Inside Finance TV are following discussions around personal planning and finance, and are releasing more videos daily.
Sometimes it can take a while to work out what somebody has but I think one of the first meetings that you have with the client is really important because you understand just them talking through what they think they have.
It gives you an idea of where they want to go and it gives them an opportunity to work out where they want to go, what's important.
The lovely thing about financial planning, you can't walk up to a cash point and press a button and it tells you what you should do, it's all very personal.
We all have different hopes and aspirations and dates that we think we're going to retire or what we want to do with our money.
So it's wonderful, you get to know your client very well.