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Retirement Options

As Chartered Financial Planners and Independent Financial Advisers (IFAs) Jacobs Financial employs Retirement Option Specialists who can provide advice to clients who have accrued pension funds. 


There are usually a number of options available and thanks to simplification to pensions rules in April 2006, investors now have increased flexibility at retirement.


The earliest that retirement benefits may be taken is from age 55. 


The default option for most people is to set up a lifetime annuity, which pays a secure income for life. However, there are also alternatives to an annuity. These may be higher risk and more expensive, but are also more flexible.     


What are your options?     


You may leave your existing pension funds with your current providers.      


take a tax-free cash sum and utilise the existing provider’s annuity rates to purchase a conventional lifetime annuity or alternative      


you may exercise a transfer of the whole value of your pension fund to another provider that currently offers the best conventional annuity rate, a with-profit annuity or an alternative such as unsecured pension or phased retirement      


You may elect to take your tax-free cash from the existing provider and use the open market option to purchase the best conventional annuity rate, a with-profit annuity or an alternative such as unsecured pension or phased retirement plan     


Conventional Lifetime Annuity

An annuity is the simplest retirement option and provides a secure, taxable income which is payable for the rest of your lifetime.   


Investment-Linked Annuity  


You may use the whole of your pension fund after any tax-free cash has been paid, to purchase a 'with-profits' or ‘unit-linked’ annuity with either your existing or another provider. These are designed to give you the opportunity to obtain an income that increases during your retirement. Unlike conventional annuities, they are linked to an underlying investment fund contain an element of risk.      


Income Drawdown (Unsecured Pension)

This allows you to vary future income levels to dovetail with your overall financial plan. This is a flexible option which should be a consideration for more substantial funds, or for clients who have other sources of income.     


Phased Retirement

You may convert your retirement fund in stages, over a number of years, into income (often referred to as staggered vesting or phased retirement) by transferring into a Personal Pension Plan. This can provide a tax-efficient target ‘income’.                 


Alternatively Secured Pension from age 75  


You may transfer the whole of your pension fund to an Alternatively Secured Pension, but only from age 75. This allows you to vary future income levels to fit in with your overall financial plan, but to a more limited extent than is available under unsecured pension.     


Tax-free cash  


Tax-free cash is also known as “Pension Commencement Lump Sum” and since April 2006, 25% tax-free cash is potentially available on most pensions, including those in which it was not traditionally allowed, such as AVCs and protected rights funds. You can normally take up to 25% of your pension as tax-free cash (this must be done before age 75).     


The Financial Conduct Authority published a guide in November 2007, entitled “Just the facts about your retirement options – Income Withdrawal”. To view the guide, click here     


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