Pensions Are Rubbish; I Have To Buy An Annuity’

By on December 30, 2012

We hear many myths about pensions repeated at regular intervals; however this is probably the most popular misconception about pensions.

We therefore thought we’d take a look at why this myth is a long way from the truth and dispel a couple more at the same time. Who says financial advisers don’t offer value for money!

To tackle this myth head on though, there is no longer any compulsion to buy an Annuity when you retire, or indeed at any other age. It used to be the case that you had to buy an Annuity by the age of 75, but in one of the few positive changes made by this government to pensions, this rule was abandoned a couple of years ago.

We’ll say it one last time, if you chose not to, you never, ever, have to buy an Annuity.

That’s that out of the way so let’s deal with another couple of other pension myths we hear regularly.

“Pensions are rubbish; I can’t take my money out when I want to”
True, you can’t take all the money from your pension and you can’t have an income from your pension until you are age 55 at the earliest, when you can also have a tax free lump sum of up to 25% of the amount in your pension.

Pensions are restrictive in the amount you can take out; there are two main reasons for this. Firstly, they are there to provide you with an income in retirement, if you could take it all out, and you did so, what would you live on? Secondly, the government has given you tax relief on your contributions, the quid pro quo for which is that they dictate, to a degree, when and how you can have the money out.

The choice is simple, if you want to be able to withdraw as much of the money as you like, whenever you like, then use an ISA (Individual Savings Account) to save for retirement, but if you like the idea of the tax relief, then you are going to have to wait to get at the money.

“If I die then no one gets my pension”
Another easy myth to dispel, although exactly what does happen to your pension when you die depends on the type of scheme you are in.

If you have a Personal Pension, Stakeholder Pension or SIPP (Self Invested Personal Pension) and you die before retirement, whatever you have in the ‘pot’ gets paid to whoever you have nominated to receive it and no tax is deducted.

If you are a member of a work place pension then your spouse will have options, including a lump sum and / or income, the exact make up of which will depend on the type of scheme you are in.

So no matter what type of pension you pay into, if you die before you reach retirement, your loved ones will benefit from your hard work and your retirement savings.

Don’t let myths stop you planning for retirement
Planning for the years when you are no longer working is too important to be influenced by myths, rumors and misunderstandings.

Sure, listen to what others have to say, but make sure you do your own research too, from reputable sources, or take advice from an Independent Financial Adviser and get the truth about pensions before you make those all important decisions.

Phillip Bray is a retirement expert writing for Investment Sense. Phillip has written on the subject of retirement planning, including Pensions, Annuities, Income Drawdown and Flexible Drawdown for over 17 years and has regularly been quoted in the national press.

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