Pension Drawdown and Annuities explained

Having an in-depth understanding of pension drawdown and annuities is the key to maximize your earnings on your golden years.

15:51 24 February 2013

Once your pension reaches maturity for your retirement, you will need to use the money to buy annuity or pension drawdown.  This will give you a regular source of income for your golden years after you stop working. 

Pension drawdowns give you flexibility with regards to choices of income and when to receive your benefits, and when to stop. However, you have the option to go into a pension annuity at any time. 

 

Keep in mind that once you have bought an annuity, it’s permanent. That means that you cannot return the annuity or refund the money for any reason. Thus, it’s crucial that you really think about it before you make a purchase. 

 

You have several options. Studying these options is simply a must. This will help you make well-informed decision and may lead to getting the most out of your retirement money. Here are some of your options:

 

Standard allowance – This is the most common type of annuity. It’s appealing to a lot of people because it pays fixed earnings for the rest of your life. But is it really the best choice? Well, the downside with this option is that you’ll receive the same amount of money and this will not help you beat the inflation. 

 

Profits allowance –This means earning money you obtain to the growth invested in bonds, stocks, and gilts. Keep in mind that there’s a risk here as the stock market and the economy is very unpredictable. 

 

Immediate existence allowance–This generally pays more compared to your other options. You’ll be eligible for this if you have existing medical condition or other factors like smoking or weight problems that can shorten your life span.