Annuities. A Quick Guide. CIB Retirement Solutions

Transcription

1 CIB Retirement Solutions Annuities A Quick Guide CIB Retirement Solutions Beta House, Laser Quay, Culpeper Close, Rochester, Kent. ME2 4HU Tel: Fax: pensions@cibretirement.com Web: CIB Retirement Solutions is a trading style of CIB Wealth Management LLp Appointed Representative of First Financial Advis ers Ltd, who are Authorised and regulated by the Financial Conduct Authority

2 CIB Retirement Solutions 2 Guide to Annuities It takes many years of planning, saving and sacrifice to build up a significant pension pot for your retirement. So, it is vitally important that you make the most of it. Our guide is designed to provide you with the basic information you require to start thinking about your retirement opportunities and how CIB Retirement Solutions can help you get the best deal. What is an Annuity? An annuity is a regular fixed income that you buy with a lump sum. Its term may end at a fixed date in the future, when you die or when another named person dies. The most common reason for buying an annuity is retirement, when the lump sum you have built up over the years through a company or private pension scheme is used to buy an annuity and thereby provide you with a lifetime income. However, annuities can be bought with a cash lump sum from any source by any person who requires income. What are the current retirement rules? It used to be compulsory to purchase an annuity at retirement and the latest you could defer this to was the age of 75. Legislation now allows all pension investors to consider taking their benefits from the age of 55 onwards. Therefore, the choices you face are now wider than ever. You can now you can take a pension commencement lump sum of up to 25% of your pension fund at retirement and defer your annuity purchase, or you can draw an income direct from your fund instead. You can build in guaranteed payment periods and protection for spouses and dependents. Alternatively, you can combine annuity purchase, deferral and tax-free lump sums so that you retire in stages over several years. Or, take a pension for a fixed term with a certainty of a review in the futur e. Not all these options are suitable for everyone and there are certain costs and risks associated with each - but they all deserve at least some consideration before you make your final decision. This guide therefore provides an outline of the basic points while consultation with one of our professional retirement advisers will help you consider each in more detail.

3 CIB Retirement Solutions 3 Buying an Annuity. The Process and the choices you have ahead of you. Always remember that, once you have purchased a specific annuity, you have it for life you cannot go back on your choice so it is important to get that decision right. Annuity rates will change with the interest rate climate so, for example, if you are buying at a time when gilt rates are particularly low, you may decide not to invest your whole retirement fund immediately and retain some of it instead. In addition, when considering whether to buy that annuity, remember doing so will consolidate the value of your investment unless you buy an investment-linked annuity (see below), there is no possibility of benefiting from future growth. In addition, unless you write in certain guarantees, you will not be able to pass any of that value on to your heirs. If you then die earlier than expected, the full purchase of an annuity would mean that the value of your fund is lost. SELECTING A PROVIDER It can be tempting simply to look for the highest rate you can find and take it. However, the long-term security of the annuity provider should be of greater consideration, as should the safeguards you include to protect yourself against inflation. Increasing life expectancy means retirement could now last 20 years or more. Comparison information on annuities is widely available, so make sure you shop around. We can help you look at the entire market of annuities and select the one that is right for you. WHAT TYPE OF ANNUITY SHOULD YOU BUY? BUYING AN ANNUITY The first and most important question is whether or not you want to buy an annuity at all. There are a number of different ways you can take your pension. 1) Single life or joint life? This will depend on whether you have a partner for whom you need to provide after your death. If you have a single life annuity, the income you receive will stop if you die before your partner. If they have no income provision of their own, this could leave them in a difficult situation that a joint life annuity would have helped to alleviate. However, as the joint life annuity will be based on your combined life expectancy, the income you receive from this option will be lower than that of a single life annuity.

4 CIB Retirement Solutions 4 ONCE YOU HAVE PURCHASED A SPECIFIC ANNUITY, YOU CANNOT GO BACK ON YOUR CHOICE, SO IT IS IMPORTANT TO GET THAT DECISION RIGHT. 2) Would you like protection against inflation? Since December 2009, the annualised rate of inflation - as measured by the Consumer Price Index - has remained above the Government s target rate of 2%. This demonstrates the constant potential for increases in the cost of living. However, even with inflation at a low rate, a fall of just 2% every year in your disposable income could have a substantial impact over the long term. Protecting your annuity against inflation will cost you more in the short term but may provide peace of mind in the long run. 3) Would you like a guarantee period? Having saved for years for a decent retirement fund and then purchased an annuity, it is unfortunately possible you might die earlier than expected. This means the annuity will cease and most of the funds accrued over the years will ultimately be wasted. This encourages some retirees to put off buying an annuity for as long as possible (see overleaf). An alternative, however, is to buy an annuity with a guarantee. This ensures a guaranteed income will be paid for the rest of your life or for a specific period, which means, even if you die earlier, your heirs will receive some benefit. 4) Could you accept some investment risk? Investment-linked annuities invest your money into stocks and shares on the premise that investment growth could increase the potential for higher income payments in the future, without the need for you to buy inflation protection (see 2 above). There are risks to this approach, however, as your investment might not grow indeed it might actually fall. Alternatively, even if the investment does grow, it might not grow in line with your expectations. In these circumstances, either your income will have to be cut or it will have to be maintained at the expense of the capital value of your investment. If that possibility troubles you at all, you should stick to conventional annuities. 5) Do you want to buy from more than one annuity provider? Although the income from annuities is fixed, retirees still have to take something of a chance on the provider. As the near-collapse of Equitable Life demonstrated, no company is 100% safe. That said, changes in legislation following the problems at Equitable Life mean that annuity providers are now better capitalised, so investors have greater protection than before. However, as with any investment portfolio, you may feel mor e comfortable spreading your risk across a number of different providers, which could also make other choices easier. For example, you could inflation-proof just part of your income or put a proportion into a joint life annuity if you need to provide for a dependant. 6) Do you qualify for an impaired life or an enhanced annuity? If you are suffering from a life-shortening condition, such as heart disease or cancer, you can qualify for an impaired life annuity. Alternatively your lifestyle - for example, if you smoke, are overweight or have worked in a hazardous occupation - might mean you qualify for an enhanced annuity In general, the term impaired life annuity is used where there is a reasonable expectation the person will die within a few years. An enhanced annuity is for someone whose life expectancy is reduced, but perhaps not to such an extent. DID YOU KNOW? You don t have to get your retirement income from your current pension provider. Shopping around can significantly increase your income. CIB Retirement Solutions will review the market and aim to provide you with the greatest return on your pension for your needs. Call us now on

5 CIB Retirement Solutions 5 Are there any alternatives? There s more to life than plain old annuities. Alternative options may allow you to control your retirement income, chose how you protect your dependents and minimize your tax. DEFERRING PURCHASE Deferring the purchase of an annuity to older age might mean the rate of income you can obtain increases. If you have the flexibility, you might also be able to choose a more favourable time in the gilt rate cycle and therefore benefit from any further growth in your pension pot. Of course, you should always be aware that the value of your retirement fund could be eroded by poor investment performance, lower interest rates or difficult markets or even a recalculation of life expectancies and you should weigh these risks against the potential gains. INCOME (CAPPED) DRAWDOWN If you defer the purchase of an annuity, you can arrange an unsecured pension (drawdown) scheme for the interim, which allows you to draw an income direct from your pension fund. The rest stays invested until you want to use it to buy an annuity. You can then choose the a mount of income you want (subject to maximum limits set by HM Revenue & Customs) so, for example, those who want to continue working could initially draw a smaller pension and increase the amount slowly until they retire completely. Alternatively, you could take just the tax-free lump sum and leave any income until further in the future. If you die whilst in drawdown and you have a spouse, they can simply take over your pension in their own right, essentially a 100% spouses pension. This option is flexible, has a number of estate and taxation planning advantages but it can be expensive, so is generally only worth considering if your pension fund is of a significant size. PHASED ANNUITY PURCHASE Phased retirement is really a series of mini retirements. It allows you to buy an annuity or draw down income in stages, rather than all at once. You decide the level of income you need each year and take that amount from the plan. The rest of your pension pot remains invested and any growth will depend on how it is invested. It should also be noted that, once you have started a phased annuity purchase, you cannot change your mind. This allows you to control the speed of your retirement, use your tax free cash allowances to supplement your annual income and spread the annuity rate risk over a number of years.

6 CIB Retirement Solutions 6 Reviewing your options and taking professional advice is the best way to ensure that you maximize your retirement income. FLEXIBLE DRAWDOWN This is where you have the ability to withdraw as much of your pension pot as possible over a relatively short number of years. However, you must already be in receipt of a secure pension income of at least 20,000 per year from other registered pension schemes (namely final salary occupational schemes). Clearly, this is quite a complex option and a number of personal taxation issues need to be considered. SHORT OR FIXED TERM ANNUITIES There are other options, such as short-term annuities and lifetime cashflow products. The former, for example, is an agreement between you and an insurance company in which you pay over part of your pension fund and the insurance company pays you an income for a fixed period of no more than five years. At the end of the period you receive a proportion of your capital back to either establish a new plan, or choose another retirement option. This could either prove beneficial or work against you, depending on the prevailing environment. These types of plans might be suitable for an individual who wants to defer buying a lifetime annuity because they believe annuity rates might improve in future. Whatever your thoughts, to ensure you take account of the full range of available options, we recommend that you speak to one of our professional pension specialists. Call us: pensions@cibretirement.com Web: A recent example of how CIB Retirement Solutions can add real value to you; Mr Williams wished to consider taking his retirement benefits on his 60 th birthday. He had two personal pensions with a total fund value of 167,784. Mr Williams wanted to take his maximum tax free lump sum and ensure that his wife would receive a 50% spouses pension should he die. His current schemes offered him a maximum pension of 5, His current providers made no allowance for the fact that Mr Williams was a smoker. CIB Retirement Solutions reviewed the clients circumstances, researched the market and were able to enhance this to 6, per annum. So, CIB Retirement Solutions, increased the clients retirement income by per year for life. That s a 16% return for just picking up the phone and taking some valuable advice. Comparing your options and paying for professional advice can increase your income for life..

7 CIB Retirement Solutions 7 CIB Retirement Solutions specialise in adding value to clients retirement opportunities and helping their pension funds go further, with the features and flexibility they need. Why allow your pension company to waste your money? More often than not, your current provider WON T ha ve the mos t competiti ve annui ty for your needs, nor will they consider the wider options available in the market. CIB Retirement Solutions can review your circumstances and hel p you make the savings you need to improve your pension benefi ts. Know what your options are. We help clients unders tand wha t they need and the opti ons they ha ve. We deal in simple plain English so that clients can make the right choices based on clear and informative information. Everyone is different and you need to know the basic facts to do the ri ght thing. Don t get caught by hidden costs Clients often take the wrong deal without knowing how they will be charged. CIB Retirement Solutions provide you wi th a free annui ty review and you a re in complete control. Our costs can be paid from your funds and ONLY i f you a re happy wi th our advi ce and instruct us to proceed. You will know EXACTLY wha t the costs a re before you decide to go ahead. Its all about balance. CIB Retirement Solutions will help you balance out your need for income with your needs for security. It s not just about maximizing the rewards, it s also about making the right choices to give you the level of flexibility and guarantees that you need. We are here to look after you. Our main aim is to help you achieve your goals, add value to your overall financial position and give you a service that you are proud to have received. We have a team of qualified advisers, with over 100 years industry experience, and a dedicated administration depa rtment to l ook after your needs.

8 CIB Retirement Solutions Can You Afford to not to Review? For the majority of people, there is little or no reason to simply accept the first offer made by your current pension company. It is a simple waste of money and can have an enormous effect on your long term financial wealth and retirement income. The Need for Impartial Advice. CIB Retirement Solutions are able to provide you with years of experience in the pensions and retirement arena, which will help you understand your circumstances and get the most out of your pension. There may be times when your existing plans have benefits, options or funds that are still good for you. Our experienced advisers will let you know where you stand, so that you can make the right informed decisions about your future. Our review is easy to arrange and our report is provided free of charge. We will only be paid if YOU decide to go ahead with our advices. It could not be simpler! DON T KEEP WASTING YOUR MONEY GET MORE OUT OF YOUR PENSION FOR YOU Let us provide you with a Free Annuity Review Call our Pension Review Team on: or pensions@cibretirement.com Beta House, Laser Quay, Culpeper Close, Rochester, Kent. ME2 4HU Tel: Fax: pensions@cibretirement.com Web: The content featured in this document is for your general information and use only and is not intended to address your particular investment requirements or needs. They should not be relied upon in their entirety and are not deemed to be, or constitute, financial advice. No individual should act upon the information herein without seeking advice for an appropriately qualified individual. CIB Retirement Solutions have used their best endeavors to ensure that the information contained in this document is accurate and up to date. However, legislation and rules are subject to change and we cannot accept any liability for loss as a result of acts or omissions taken in respect of these articles. Levels and bases of relief and taxation are subject to change and their value depends on the individual circumstances of the investor. Performance, growth and annuity rates all vary. What you get back will depend upon the market conditions at the time. CIB Retirement Solutions is a trading style of CIB Wealth Management LLp who are registered in England No OC Register ed addr ess is Beta House, Las er Qu ay, Culp eper Close, Rochester, K ent. M E2 4HU. Appointed Representative of First Financial Advis ers Ltd, who are Authorised and regulated by the Financial Conduct Authority