Drawdown or Withdraw: UK Standard Pensions, ASPs, and Annuities

Is the sky falling? The current global economic meltdown is not only affecting our day-to-day lives, but also our economic plans for the future. In fact, thousands of UK retirees could experience a 50% decrease in their annuity income. Who would be affected? This would include those who invested in "income drawdown plans." Once they reach 75-years-old, they may be required to liquidate their retirement funds-at a time when the figures of worldwide stockmarkets are abysmally low.

Thus, when considering retirement options, should we forget about securing an annuity uk? The answer is: perhaps. The keys involve timing and poorly-performing stockmarkets. In fact, figures show that tens of thousands of retiring Britons are opting for a drawdown scheme that provides them with a set income-rather than a traditional annuity.

Why would certain Britons opt for this option? Firstly, their hope is that solid-performing investments will grow their pension fund, allowing them to benefit from annuity rates that are much higher for those at 75-years-old, than at 65-years-old. Secondly, retirees can also withdraw more capital from their pension fund annually, than with a traditional annuity. This makes it easier to transfer assets to their children. Thirdly, annuities that one leaves to one's dependents are subject to a tax rate that is slightly higher than one-third of the annuity's value.

Are there any major drawbacks to drawdown schemes? After reaching the age of 75-years-old, you are required to either: A) purchase a pension annuity, or B) transfer your pension funds into an Alternatively Secured Pension (ASP). What makes the situation problematic is that pension funds have plummeted during the past year.

Thus, are annuities or their alternatives a better option? While the income of drawdown schemes is becoming halved, some annuity rates are still attractive. For instance, annuity rates are dropping less steeply at 75-years-old, and will still pay over 9% annually!

What are your best retirement options for surviving the current tough economic climate? You could certainly take out an annuity, though significant risk would accompany it. Instead, it would be wiser to purchase an ASP until the pension markets recover. The drawbacks are that the available income is less than with a drawdown scheme, and the death benefits also undergo changes. However, while you can transfer both types of funds to a spouse tax-free, the tax charges for transferring them to dependents are significantly lower for drawdown schemes (35% rather than roughly 80%).

Nevertheless, if your main objective is to empty your pension fund, then you should consider annuities that provide more flexible investment annuities. Such funds allow you to draw down 20% more than a traditional annuity-even after you reach 75-years-old! However, you must pay higher charges and eventually buy a pension annuity.

While the worldwide recession continues to affect the global market, UK retirees still have some viable options. While no "perfect" option exists, you can make the right choice by determining what your retirement goals are. If the sky is falling, then secure the right retirement plan to protect yourself!