446735002-Pension-Fix-by-Martin-Lewis

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Problems in their pastA decade after variable annuities took off in the US, the industry fell under adark cloud of mis-selling accusations. The main complaint is that they were toocomplex and costly. So tread carefully before even considering going down thisroute – and take specialist advice (see page 24).Alternatives to annuitiesCapped and flexible drawdownThese products came into force in April 2011, replacing an unsecuredpension or an alternatively secured pension, at the same time the Governmentremoved the requirement to buy an annuity by age 75.However, proceed very carefully with drawdown. It is relatively high risk, andis generally not recommended for those with pension funds worth less than£200,000. For all but the very financially savvy it’s worth getting independentfinancial advice (see page 24).You can first take the 25% of your pension pot as a lump sum. By takingcapped or flexible drawdown you are keeping hold of the rest of your pensionand drawing money from it when required rather than trading it in for an annuity.This immediately means the value of your pot is at risk from plunginginvestment returns, though it can also grow.Those who think their health will deteriorate and could be entitled to anenhanced annuity can take a calculated risk to wait using one of these plans.Flexible drawdownThe difference between capped and flexible drawdown is that under flexibledrawdown you can take as much of your pension pot whenever you like. It istaxed as earned income.But you don’t have a choice between the two. Only those with a guaranteedpension income of at least £20,000 a year from an annuity or pension scheme(including state pension) qualify for flexible drawdown.These can be good for those who have other cash available to live on intoretirement and don’t feel the need for income from an annuity.20
Capped drawdownIf you have less than £20,000 a year in guaranteed income from an annuityor pension scheme, you are only allowed to take an amount similar to what youwould have got with an annuity. This is to prevent you running out of moneyand relying on the state in your old age.If your pot is less than £200,000 and you have no other assets, or youare risk-averse, you should seriously consider the annuity route for generatingretirement income.Tax on drawdownThe taxation of death benefits for drawdown also changed in April 2011. Adependant will get a tax-free lump sum on death if their relative dies before 75without having taken any pension benefits. Once they have taken some of theirpension benefits (at any age) or they are over 75 but have not yet taken pensionbenefits, any lump sum will be taxed at 55%.✓✗PROSThe value of your pot could continue to rise and it could pass to theremainder of your family.CONSThey are high risk so the value may also drop. In addition, you may run outof cash before you die.21
Page 1 and 2: Martin Lewis’GUIDE TOANNUITIESSPO
Page 3 and 4: Independence and integrityThis guid
Page 5 and 6: Martin’s IntroTHE BIGMESSAGEYou d
Page 7 and 8: Turning your pension pot into an in
Page 9 and 10: Never simply accept your pension pr
Page 11 and 12: For every month you delay buying yo
Page 13 and 14: What if I can’t remember what pen
Page 15 and 16: Tax mattersAnnuity income is taxed
Page 17 and 18: Annuity Angst: Martin’s TipsChoos
Page 19 and 20: Escalating annuitiesIncome grows wi
Page 21 and 22: Stats show how much annual income a
Page 23: The third way - variable annuitiesA
Page 27 and 28: 3How to ensure you getthe best rate
Page 29 and 30: Pensions companies will have their
Page 31 and 32: Annuity Angst: Martin’s TipsA not
Page 33 and 34: Other benefits to take advantage of
Page 35 and 36: 31Your Notes

446735002-Pension-Fix-by-Martin-Lewis

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