|
Retirement Planning
Pension Annuities
Once you have reached retirement, you can choose either to accept the annuity quoted by your personal pension plan provider, or you can see if there is a better rate on the open market (the open market option). Hence, you are allowed to transfer the funds you have built up with your existing provider to another Life Company, if it is advantageous to do so.
Unit linked annuities offer a useful alternative to the traditional annuity contract. Here, you use the fund that you have accumulated to purchase a certain number of units in one of the company’s unit linked investment funds. The value of payments will then depend on the value of these units. Annuity payments will therefore fluctuate with investment returns as income payments are recalculated in each period according to fund performance. In effect, you are giving up the guarantee as to the level of future payments in the hope that good investment returns will enable your payments to be greater in the longer term than might otherwise have been the case.
With-profit annuities link the value of annuity payments to the performance of a company’s with-profit fund. The level of income is therefore determined by what happens to the with-profit bonus rates declared by the company. The ‘smoothing’ effect of bonuses tends to provide a more stable income stream than straight unit linking.
Investment linked annuities are more suitable for younger pensioners where the investment period will be longer. It is advisable to have additional capital available to top up income should payments be reduced, or fail to rise, due to poor investment conditions.
|
