Although, it is important that you consider the tax implications of this option. Typically 25% of any withdrawal will be tax-free but the remaining 75% will be taxed as income, potentially generating a large tax bill for you to pay.
Historically, a pension annuity has been the most popular option used by those approaching retirement.
Although other options are available; it remains popular because a pension annuity is still the only way to
turn your pension savings into a regular, guaranteed income for life.
Whether or not you are considering a pension drawdown or pension annuity, when handling your
retirement funds, it is important to seek advice.
The Financial Conduct Authority (FCA) recently said 30% of consumers go into a pension drawdown without seeking professional recommendations.
And often, people are sticking with their current provider instead of exploring their options and shopping around.
Drawdown v Annuity: What's the difference?
Pension Drawdown is considered a flexible ways to access your pension savings and manage your tax bill.
It allows you to be in control of your fund as there are no limits to the amount that you can withdraw
from your savings or when you can take it.
However drawdown can have its downsides. As pension savings remain invested, there is the potential
for them to reduce in value as well as increase because there is no guarantee of investment performance
meeting future income needs.
This means your pension income could run out during your lifetime if you're not careful.
With an annuity, you can convert your pension savings into a regular guaranteed income which will be
paid to you for the rest of your life.
Many people choose this option due to the peace of mind that comes from knowing that their pension
income will not run out before they pass away Once you have purchased an annuity you cannot typically
change your mind or cancel once the cancellation period is over, which is why it is vital to shop around to
get the best deal.
How to pick the best option for you?
Deciding on the right pension-income option for you might seem confusing and that's why talking to an
experienced specialist or financial advisor is so important.
Companies like Age Partnership who are impartial will provide guidance based on your situation - helping take the stress and worry out of the process.
Your current option and or provider may be the best option, but as with most things, shopping
around and seeking advice is the best way to find out.
We recommend that you take a look at the Government's independent Pension Wise website before
making any decisions regarding your pension-income options.
If at any stage you're at all unsure about which option is right for you, we have an in-house team of
friendly financial advisors, who can recommend the best options for you.
Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.
A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.
Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.
Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.
Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.
A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement
Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.
Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.
Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.
The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.
While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.
Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to Unbiased.co.uk - because while baby boomers know how to have fun - they also know how to save for the future.