Annuity purchase usually takes place around the age of 65 for most people, but you may take it at any point from 55 and until recently you were required to take annuity purchase by 75 at latest. However, with the April 2011 rule changes it is no longer required for individuals to take annuity purchase at any specific age and they may if they wish never take it.

Annuity Purchase

You may now instead leave your pension fund where it is to continue its growth and should you wish actually take your income from there up to 100% of the GAD limits allowed; this process is known as income drawdown and may be either capped or flexible.

Additionally to annuity purchase and income drawdown, individuals may take up to 25% of their pension fund as a tax free cash lump sum which can be used and/or invested by them in any way they desire, through annuity purchase or other means. Once the 25% is taken, the residual amount can then either be reinvested back into a pension fund or be used for annuity purchase.

As pensions are designed to be used for retirement by each individual who owns one, it is clear that they are meant to be used to provide income for them when they become pensioners and are thus no longer in receipt of working income and as such will require some sort of support to continue living to a minimum standard they require.

Overseeing annuity purchase, Government currently feel the average person over estimate how much the State Pension provides them in retirement and thus don’t save enough. This has in effect resulted in an estimated £27 billion shortfall in the amount that should be being saved and the amount that actually is being saved for retirement.

Due to this the Government are keen to promote the benefits of pensions and annuity purchase, pointing out that they provide tax relief on any investment amount up to an individual’s relevant tax threshold for the contributions made, through annuity purchase or otherwise. The fund then grows with the continuation of contributions until the person reaches the age at which they decide to take their pension benefits or annuity purchase when they may then take annuity purchase or another option.

It should be noted however that although tax relief is provided on contributions any benefits taken (apart from the tax free cash lump sum) will be taxed at an individual’s tax threshold amount. So if decide to take annuity purchase for example and receive £10,000 per annum income (based on factors such as gender, retirement age, medical condition and more) you can expect to be subject to the lower tax threshold amount of 20% for annuity purchase.

For more information concerning cash in pension please contact the authors website.

Purchase Annuity: Why?

You will usually purchase annuity contracts around the age of 65 but you may do so from 55. Until recently however, you were required to purchase annuity contracts by 75 at latest at which point is was compulsory. But with the rule changes in April 2011 it is no longer a requirement to purchase annuity contracts by this time.

Instead, when you purchase annuity contracts, you may now leave your pension in its fund to continue growth and should you desire you may take an income up to the 100% of the GAD limit which is known as income drawdown.

Purchase Annuity: Alternatives

In addition to purchase annuity contracts or taking income drawdown you may also take up to 25% of your pension fund as a tax free cash lump sum which may be invested and used however you wish. The residual amount must either then be reinvested back into a pension fund or be used to purchase annuity contracts.

Purchase Annuity: Considerations

The Government promote the benefits of pensions as such that they provide tax relief on any investment amount up to your relevant tax limit (i.e. 20% tax relief for someone who pays 20% tax) for the contributions that they make. The fund is then allowed to grow with your continued contributions until you reach the age at which you wish to retire at which point you may purchase annuity contracts or take one of the other options aside from purchase annuity opportunities.

However, you should note that although you receive tax relief on contributions into the pension when you decide to take benefits (with the exception of the tax free cash lump sum) you will be taxed on that amount.

For example if you purchase annuity contracts and according to the relevant annuity provider you will be provided with £5,000 income per annum this when included with the State Pension you can expect to receive when you purchase annuity contracts will be subject to the lower rate tax threshold of 20% on which you will be taxed for the relevant amount.

For more information concerning pension release please contact the authors website.

An insurance company will in exchange for an individual selling their pension to them provide instalments as annuities to the individuals which will count as income for their retirement. The annuities instalments may be chosen by the individual on how they are to be paid as either monthly or yearly for example but there are many payment options available.

Payments of annuities are not the only type of payments that may be received by individuals in retirement however. When such a person reaches 55 they may immediately begin taking their pension benefits allowing them to take up to 25% of their pension fund as a tax free cash lump sum allowing the residual amount to be used to purchase annuities or may even be left in the fund to continue to grow.

Should annuities not be desired by the client but they still wish to receive an income from the pension funds however, they may take other options such as income drawdown which is similar to that of taking annuities in that it provides an income but is also different to annuities as the pension funds are not sold to insurance companies but instead actually stay in the pension scheme funds where they may continue to grow but at the same time allow the person to take income up to 100% of the GAD limits from it.

State Benefits such as the Basic State Pension and additions to it such as the State Second Pension may also be used to supplement annuities. These may be taken by age 65 currently for men and soon for women, although the age is rising to 68 for both and provide a weekly income. Many people overestimate that value of these and as such underfund their other retirement provisions and it is therefore recommended by the Government that everyone opens up their own pension fund to provide an income in retirement in addition to the State provisions.

How do Annuities Work?

When your retirement date approaches you perhaps may decide to consider annuities as your provision for retirement and it would be wise for you to contact a financial advisor to seek advice on what annuities would be the best option for you to take, you shouldn’t just accept the one that is offered to you after all.

If annuities are decided to be the option you wish to take then you should consider the fact that the income rates you may receive will depend on various factors such as your state of health (which may provide you with an enhanced annuity), current annuity rates, age at retirement, gender and what guarantees you decide to take such as escalation. Once these have been calculated and considered by the annuities provider they will then offer you the annuities payments suitable to your circumstances.

For more information concerning pension release please contact the authors website.

In exchange for selling their pensions to an insurance company the individual will then receive instalments as an annuity from the company which will count as an income for their retirement. The individual may choose how the annuity instalments are paid to them often choosing either monthly or yearly payments but there are many options for them to choose from.

Alternatives to an annutiy

Annuity payments are not the only type of payment that a person can receive in retirement however. When a person reaches the age of 55 they may begin taking benefits from their pension at which point they may receive up to 25% of their pension fund as tax free cash lump sum with the residual fund then being used to purchase an annuity or left in the fund to continue to grow.

Should the client not want to take an annuity but still want to receive an income however, they may take income drawdown which is similar to an annuity in that it provides an income but is different to an annuity in that the pension fund is not sold to insurance company but rather stays in the funds to continue to grow but the individual may take an income from it up to 100% of the GAD limits.

Another provision that many people overestimate the value of in retirement is the Basic State Pension and various additions to this such as the State Second Pension. These can only be taken at age 65 (for men and soon women) and soon age 68 and provide a weekly income which is designed to be taken in addition to any other savings a person has saved up for retirement such as the annuity they will purchase.

How does an Annuity Work?

When you come to the date you wish to retire and perhaps take an annuity it perhaps would be wise for you to contact a financial adviser to seek advice on whether taking an annuity with your recommended provider or perhaps taking an open market option would be the best choice for you.

Once you decide to take an annuity the income you may receive from it will depend on various factors such as your state of health which may provide you with an enhanced annuity, annuity rates, your current age/retirement age, gender and what guarantees you wish to take such as spouse benefit will also be taken into account. All of these will be taken into consideration by the annuity to decide what annuity payment you can receive in retirement.

For more information concerning private pension please contact the authors website.

Private Pension: How it Works

Contributions an individual makes into their private pension arrangement receive tax relief on the amount up to the relevant tax level that the individual pays. In effect, a basic rate tax payer would receive 20% tax relief on any contribution they make into their private pension (whether private pension or occupational pension), an example of this would be:

Susan invests £80 into her private pension arrangement on which she receives 20% tax relief from the Government which takes the total contribution into her pension up to £100.

Contributions into your private pension may be made at intervals that are best suited to your needs and circumstances such as monthly, yearly or even lump sum but limits do apply on the amount that may receive tax relief. Only the higher of £3,600 or up to 100% of relevant UK earnings may receive tax relief on the contributions (limits apply) while any amount over this into the private pension will be subject to tax.

An estimated £27 billion shortfall exists in today’s market between what people should be saving and what people are actually saving in their private pension funds, usually because they overestimate how much the State Pension provides upon retirement. This shortfall has resulted in the average private pension income a UK adult retiring in 2008 to be £18,663 while average income for a working adult is roughly £5,000 more than that amount.

The Government have due to this attempted to combat the shortfall in pension savings through a strong push to inform people about the importance of pension saving while encouraging individuals to open up their own employer or private pension arrangement.

Private Pension

Private pension schemes are pension schemes set up by people wishing to have more direct control over their pension rather than opening one up with their employer. By doing so they may also receive better rates and a wider spread of investments to choose from.

Many types of private pension schemes exists which allow individuals to set up arrangements providing them with a choice of differing funds, charges and companies to hold the schemes with. Different types of private pension such as SIPPs or SASS which allow specialist investments to be held may also be opened up as a private pension.

Most private pension arrangements for individuals are usually held under large insurance companies such as Scottish Life and AEGON which hold large funds with many investors; but should you desire you may invest in smaller, higher risk companies if they meet your goals and circumstances.

It is recommended that should you desire to set up a private pension then you could contact a qualified financial adviser to help you choose the best funds for you and your circumstances.

For more information concerning cashing in pension please contact the authors website.

There are many different types of pension schemes that come under either defined benefit or defined contribution schemes.

Pension Advice: Definitions

Defined benefit schemes are often referred to as final salary schemes which provide you with a specific amount of income and tax free cash upon retirement based on a set accrual rate and percentage of your income during your working life. These schemes are often seen as the most beneficial pension schemes for individuals to invest in and you probably wouldn’t need to receive pension advice whether to invest in these pension schemes or not.

The other type of pension scheme is defined contribution which you should perhaps seek pension advice on what kind of scheme to invest in and what funds to choose as there are many types of defined contribution schemes such as Money Purchase, SIPP and SASS which all give you varying levels of investment opportunity, rates and charges.

You may also choose whether to invest in a personal pension or an occupational pension which each offer different advantages.

Advantages of a personal pension for example may be better growth rates, varying charges, freedom to control your own pension fund, wider selection of funds and wider selection of companies to invest with. While advantages with occupational schemes would largely be the fact that your employer may also contribute in addition to your own contributions which can increase your benefits upon retirement significantly.

It is clear to see then why pension advice may be so relevant to anyone who is interested at looking into starting up a pension as there are many options out there for you to choose and it could all be very confusing. But what would pension advice offer you?

Pension Advice

The idea of pension advice is so that a qualified financial adviser can best guide you into the area of pensions that best suits you, whether it be into reference to opening up a pension, taking pension release or if you are retiring and looking for the best place to take your benefits. Financial and pension advice can help guide you in the right direction to hopefully ensure you get the best results for you and your circumstances.

Pension Advice: What to expect

Should you decide to take pension advice you can expect to be contacted by a financial advisor in regards to what type of pension advice you wish to receive at which point they will conduct a full know your client factfind and risk questionnaire. This will be used by the adviser to help provide you with the best pension advice they believe possible for you so it is generally important to answer their questions as truthfully and accurate as possible to ensure the best pension advice for you.

Pension Advice: Final Thoughts

Of course, should you feel you do not need pension advice then you are free to operate your pension how you see fit, but usually pension advice should be taken by anyone who is not 100% clear on what they want to do and what the rules are regarding different pensions and schemes.

For more information concerning taking pension early please contact the authors website.

Pension release (i.e. to sell pensions) is where a person who owns a pension fund is able to take benefits from their selected pensions before they reach their retirement date. However, there are limits on who can take pension release as you must be at least aged 55 (this used to be age 50 but changed in April 2010), you cannot take benefits from a State Pension and some final salary schemes do not allow you to sell pensions if you are still an active member. Additionally, if you wish to sell pensions you must not already be in full receipt of the benefits of the pension you wish to release as these funds will be considered crystallised.

Considerations when you sell pensions

However you should note that pensions are predominantly designed to be taken in retirement to provide you an income . The Financial Services Authority recommend that you should consider carefully if you do need to sell pensions as it may harm your income in retirement.

If you do decide to sell pensions then you will be able to take up to 25% of your pension fund as a tax free cash lump sum which you may reinvest in another investment or use in any other way you desire. Once you sell pensions, however, you will need to transfer your pension fund to another arrangement where it will be reinvested and can either continue to grow until you retire or you may take an income from it. Alternatively, you may, should you desire to sell pensions, hold to an insurance company and purchase an annuity with it.

To sell pensions then may also have slight confusion with that of purchasing annuities where effectively you do sell pensions to an insurance provider which will then be exchanged for annuity payments for the rest of your life.

Limitations to sell pensions

Several factors are taken into consideration by annuity providers when you purchase an annuity from them such as annuity rates at the time you take one, your gender, state of health, age and various other factors. In return for when you sell pensions to the providers, the insurance companies will offer you guaranteed rates (with varying limits depending on different terms you choose) that will provide you an income for the remainder of your life.

For more information concerning early pension please contact the authors website.

Pension release (i.e. selling pensions) is the process whereby an individual who owns a pension can take benefits from their pension before they actually intend to retire. There are limits on who can start selling pensions: you must be aged at least 55 (changed from the age 50 rule before April 2010), it cannot be a State Pension, you must not already be in full receipt of the benefits you are receiving from selling pensions and some final salary schemes do not allow you to take benefits of selling pensions if you are still an active scheme member.

Selling Pensions

It should also be noted that the Financial Services Authority (FSA) believe you should not participate in selling pensions unless you need to as pensions are designed to be used in retirement and by taking benefits from your pension early may harm your income in retirement.

If you decide to start selling pensions you will be able to take up to 25% of your pension fund as a tax free cash lump sum which you may invest or use however you desire. Once this amount has been taken however you will need to transfer your pension to another pension provider where you can then reinvest the amount to continue growth until you retire or take an income from the fund. You may also, should you desire, begin selling pensions to an insurance company and purchase an annuity with it.

Selling Pensions

Selling pensions then may also be confused with that of purchasing an annuity where effectively you are selling pensions to an insurance provider in exchange for annuity payments for the rest of your life from that provider.

There are several factors that are taken into consideration when you buy an annuity such as annuity rates at the time you begin selling pensions: your health, gender, age and various other factors. In return for selling pensions to them, insurance companies will offer you guaranteed rates (which you can choose to have escalation on to ensure they go up with inflation for example) that will provide an income to you for the rest of your life.

The idea of an annuity when selling pensions is that the insurance company reinvest your pension to earn growth from it and in return give you an income (which is taxable) aimed to repay you the pension amount until your expected death. If you die early however this will result in less than your full pension amount being repaid, whereas if you die later than expected you will earn more than your pension amount from the annuity provider.

For more information concerning annuity purchase visit the authors site.

Cashing in Pension Early: Background

An estimated £27 billion exists in shortfall in today’s market between what people should be saving in their pensions and what they are actually saving according to the Government and this has resulted in the average income of a UK adults pension in 2008 to be £18,663 while the average income for a working adult at the same time is roughly £5,000 more.

Cashing in Pension Early: Governmental Role

It is clear then why the Government see it as so vital for individuals to have a pension of their own, as well as a way for cashing in pension early. The beneficial tax treatment and generous investment limits which allow any amount to be contributed but only receive tax relief on the higher of £3,600 or 100% of relevant UK earnings demonstrates why pensions are the Governments favoured tool for saving till retirement.

But there are drawbacks to pensions such as due to the fact they are meant to be used for retirement you can’t access one before the age of 55 and the Government recommend you should access one at all until you retire. Despite the Government’s advice however cashing in pension early (from the age of 55) is a right that all pension holders have.

Cashing in Pension Early?

If you are interested in cashing in pension early then you should first understand this term is usually referred to as pension release whereby an individual with a suitable pension fund or funds literally is cashing in pension early thus enabling them to release up 25% of their fund as a tax free cash lump sum. The remaining 75% of the fund is then transferred to a new pension provider to continue to grow or you may begin taking an income from it usually through an annuity or income drawdown.

Cashing in Pension Early: Limitations

There are limits however on what types of pensions allow cashing in pension early. State Pensions for example do not allow cashing in pension early, you can only take this earliest upon your state pension age. Many final salary schemes in which individuals are still active members may also restrict and not allow cashing in pension early.

However, should you decide that cashing in pension early would be suitable to your set needs and circumstances then your next step should be to contact a qualified financial adviser who will assist you in cashing in pension early and ensuring you take the route that best suites you and your needs.

Cashing in Pension Early: Summary

You should note however that the Financial Services Authority recommend pensions be used only upon retirement to provide an income when you are no longer working, as such you should think carefully about cashing in pension early and whether it is suitable for you as it could harm your income at retirement should you decide to start cashing in pension early.

For more information concerning purchase annuity visit the authors site.

Pensions are not however always seen as the best saving vehicle for retirement by some people as cashing in pension funds early can be a difficult thing to do. Indeed usually you will have to wait till at least the age of 55 before you can take any benefits at all from your pension and even then most people will not take any benefits until they retire around 65 when they are cashing in pension.

Cashing in Pension: Taxes

The beneficial tax treatment and lack of investment limits which allow any amount to be contributed but only receive tax relief on the higher of £3,600 or 100% of relevant UK earnings still makes pensions the desired choice for many above other such options like ISAs.

But if cashing in pension funds early is an option you feel suitable to your needs, what options do you have?

Cashing in Pension: Funds?

Cashing in pension funds is the term used to describe the process of pension release whereby an individual with a suitable pension fund(s) literally is cashing in pension funds to enable them to release up to 25% of the pension funds a tax free cash lump sum. The residual amount of the fund is then transferred to a new provider to continue to grow or receive an income, or may be sold to purchase an annuity should the individual desire.

Cashing in Pension: Limits

There are limits however on what types of pensions allow cashing in pension funds. For example, cashing in pension funds from a State Pension is not allowed, neither is cashing in pension funds for many final salary schemes that restrict taking benefits to members still within active service.

If you decide however that cashing in pension funds is suitable to your needs, then you should contact a qualified financial adviser to assist you to do so as they can perform the cashing in pension fund process for you and keep you informed each step of the way.

Cashing in Pension: Considerations

It is recommended however by the Financial Services Authority that pensions be used solely for providing an income at retirement and as such you should think carefully if cashing in pensions funds is the right thing for you as it could harm your income at retirement should you decide to start cashing in pension benefits.

For more information concerning selling pensions visit the authors site.