DRAWING YOUR PENSION

How you plan to use the money you’ve saved in your pension will affect which funds you should be investing in. if you’re planning to choose an annuity, take money out of risky equities and put it into safer cash investments to avoid seeing your pot plumme

There are a number of options available to you:

Annuities – currently looking poor value, with a £100,000 pension pot providing just over £5,000 a year or £4,000 if you want it to grow with inflation. But annuities are guaranteed, paying out right until the end. Women can expect to live for a further 21 years at age 64 so annuities can be an important part of your overall retirement income portfolio. Lump sums –a popular part of the pension and you can take up to 25 per cent of your pension taxfree from the age of 55. You can just draw a series of lump sums from your pension without moving it, but this isn’t recommended because your current pension fund is set up for saving, not withdrawal, so won’t deliver either the value or the security you need. Plus, taking larger lump sums could see you landed with a hefty tax bill if not carefully managed. Talk to an adviser about a drawdown fund instead, where your funds are reinvested in a suitably balanced portfolio. inCome drAWdoWn – the most flexible option and likely to give you the best income. It’s a way of using your pension pot to give you a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you get will vary depending on the fund’s performance and it isn’t guaranteed for life. You may run out of money if the markets aren’t kind or if you don’t manage it well. GuArAnteed drAWdoWn – is where your income is guaranteed through an insurance scheme and your money stays invested. “This is a bit more expensive to run and can be complex to understand, but it is designed to give you the best of both worlds and is becoming increasingly popular,” says Bob Stark at Portafina.