Adviser > Individual > At retirement options
At retirement options
Find out how you can help your clients choose the right retirement option.
Helping your clients choose the right retirement option
When your clients come to access their retirement plans they have a number of options available to them making the decision process complicated.
It is important that you provide your clients with the appropriate advice to allow them to choose the retirement option that best suits their individual needs.
There are a number of questions that you need to ask your clients before you can provide them with appropriate advice:
- Does your client need immediate income? If yes;
- Does your client want to take a guaranteed income or a flexible income?
- If taking income withdrawal, the amount of income that should be taken, the amount of risk the fund should be exposed to and when to buy an annuity?
- If they want to buy an annuity, and the type of annuity?
- Whether equity release is an option?
- Does your client want to leave an inheritance?
- Does your client want to provide benefits for a spouse/dependant?
- Does your client have additional assets capable of providing an income?
- Is your client entirely dependent on their pension for a retirement income?
- Is the plan in line with your client's attitude to risk?
- Does it fit your client's personal and financial circumstances?
- Does your client have any existing guarantees with a provider?
- Is your client aware of all their options?
- Is your client in ill health?
This is not a complete list of questions and you should ensure that any recommendations you make take into account your individual client's requirements and adheres to your own compliance requirements.
Advantages/Disadvantages of At Retirement Options
You can help your clients come to a decision by discussing and assessing how the advantages and disadvantages of each option fit into their individual financial objectives.
Please click on a retirement option below to find out the advantages and disadvantages of each.
Conventional annuities
Advantages
- Simple contract
- Low charges
- Guaranteed income (depending on type of annuity)
- Access to full tax-free cash (TFC)
- Can provide spouse's/dependant's benefits
Disadvantages
- No income flexibility
- Limited death benefits
- Annuity options must be chosen at outset
- No opportunity for further investment growth (does not apply to Investment linked annuity)
Capped income drawdown
Advantages
- Can take TFC without taking income
- Income flexibility (between HMRC limits)
- Investment choice
- Fund may be invested for further growth
- Tax efficient fund
- Buy annuity at any time
- Tax-free lump sum available from the uncrystallised fund in the event of death before age 75
- Lump sum available from the crystallised fund less a 55% tax charge
Disadvantages
- Fund is subject to investment risk
- Income is not guaranteed and may fall in value
- Interest rates may fall leading to a smaller annuity
- Higher charges and commission may reduce the value of the fund
- Complicated product
- Lump sum death benefit subject to 55% tax charge on the whole fund in the event of death after age 75 (on the crystallised fund in the event of death before age 75)
Flexible income drawdown
Advantages
- Can take TFC immediately
- Can take income any time from age 55
- Can take higher income for specific purpose/specific years
- Can target income to manage income tax
- Can take the whole fund as a one-off payment subject to income tax
Disadvantages
- There is a minimum secured income requirement of £20,000
- No further retirement saving allowed otherwise a tax charge is applied
- Client could withdraw the whole fund reducing potential for future income
- Not available for Protected Rights until April 2012
Phased income drawdown
Advantages
- Ability to take a specified amount of TFC
- No need to take income unless required
- Allows further crystallisation for TFC/income in future
- Crystallised/uncrystallised funds can be invested for growth
- Can make further contributions to uncrystallised fund
- Tax-free lump sum death benefit payable from uncrystallised fund in the event of death before age 75
Disadvantages
- TFC limited to 25%¹ of crystallised fund
- Value of fund not guaranteed
- Income levels could be reduced if investment targets not achieved
- The eventual annuity could be lower than the income available at outset
- Higher charges and commission may reduce the value of the fund
- Complex product
"Third way" drawdown
Advantages
- Ability to guarantee/underpin income levels
- Invest fund for future growth
- Lock investment gains in
- Lump sum death benefits available
Disadvantages
- Extra cost for additional guarantee
- May be restrictions on investment funds available
- May be restrictions on when income can start to be withdrawn or income guarantees may only apply from certain ages
- Lump sum death benefit subject to 55% tax charge on the whole fund in the event of death after age 75 (on the crystallised fund in the event of death before age 75)
Find out more
Download the following PDF leaflets for more information on retirement benefit options and the advice process:
Source:
- Clients with pre A-Day protection may receive more than 25% but only if all retirement benefits are taken at once i.e. not via phased retirement.
For professional advisers only
