Whilst annuities are the favoured approach for the majority of people retiring they tend to get used for the smaller pension funds. The average pension fund size at retirement is circa £35,600 and the median size pension fund is £20,000.

For those people with substantial assets for their retirement a variety of other options may be more appropriate. A range of different types of ‘Drawdown’ could give additional flexibility for clients with six or seven figure pension funds.

Drawdown pensions allow the individual to draw income (within limits for Capped approach) directly from their pension fund. The pension remains fully invested and the people taking this approach to retirement need to be comfortable with investment risk.

There are a variety of different types of Drawdown available including Capped, Phased Annuity Purchase, Phased Drawdown and Flexible Drawdown; the Drawdown most suitable for you will depend on your own personal situation and objectives.

It may be appropriate to combine a few different retirement income approaches to give you what you want. For example you may wish to have a minimum guaranteed level of income and buy an annuity to provide this income. If you then combined this annuity income with a Drawdown pension (and your State Pension if you have reached State Pension Age) this could give you the income flexibility you want.

A combination of income approaches can give you a variety of death benefit options and tax positions too.

The recent budget implemented changes to Drawdown on 27/03/14 that increased the maximum GAD income from 120% to 150% and lowered the minimum income requirement from £20,000 per annum to £12,000 per annum to remove income restrictions altogether under Flexible Drawdown.

These measures look like they are just for the short term as we await the outcome of the consultation ‘Freedom and choice in pensions’. As outlined in the budget from April 2015, individuals could have access to all of their pension fund, subject to income tax.

The proposed new legislation should drive innovation for products for people about to access their pension benefits. For the average person, good advice about these increases to flexibility is more important than ever.

Should you wish to discuss your retirement income options please contact us.