With many thousands of people reaching pension age over the coming years, hundreds of millions of pounds of pension funds will be converted into a retirement income. Typically these pension pots have been used to purchase an ‘annuity’ – a guaranteed income each year for the rest of your life.
Once you approach retirement your pension company will write to you with details of some of the options you have available to you. These include taking their offer of an annuity, taking tax-free cash, utilising the Open Market Option, deferring retirement until later on or taking the ‘triviality option’.
Unknown factors such as how long you will live, your future health, inflation and interest rate levels all add up to more uncertainty. Jargon such as level payments, RPI, spouse’s pension, guaranteed periods, enhanced annuities and value protection do nothing to help make the correct path forward any clearer.
Due to the mass of paperwork they send you, along with all of this jargon, is it any wonder that most people choose the first option they’re given, not really knowing whether this is the best for their circumstances. This wouldn’t be a problem if you could change things down the line but the fact is, drawing your pension is normally a one-off decision that will define your retirement for years to come.
With the average retirement lasting 20 years and counting, pensioners will have a very long time to regret the wrong decision.
What’s more, a financial adviser will take away the hassle of sorting all of the paperwork for you, meaning you can relax in the knowledge that everything is being taken care of.
It is often assumed that financial advice is expensive but the difference it can make to your retirement can cover the cost of advice many times over. What’s more, what is often missed is that choosing a retirement product without taking advice usually means a commission is taken by the company themselves. By taking professional advice this commission is avoided and in some cases the cost of advice may actually be lower than the commission saved meaning it costs you no more to take advice than not!