Nov 18 2009
More Pension Woes!
I’ve been studying my pension plans of late and become quite clued up but the more I find out the more I realise it’s the ideal way to get ripped off again. For example, most people would expect to buy an annuity with their pension pot but there is a wide range of returns quoted for a given size of pot. Obviously, the best thing to do is shop around.
But wait, there’s more (as they say on those ridiculous ads). If you take an annuity it’ll deliver approximately twice the annual income typical investments would (at the moment) because when you die the insurance company gets what’s left. The actuarial tables tell them more people will die before the pot expires than not. Or, to put it another way, the annuity returns are calculated such that there’s a good bit left for them.
So, to get the best out of your annuity live a long time! You can also index link it; split between yourself and spouse (50% split means if the holder dies the spouse gets a 50% pension) and/or get an enhanced annuity for impaired life (i.e. smoke more than ten fags a day).
Now, you don’t need to take an annuity until you are 75, and you don’t need to pay anyone to ‘unlock’ your pension either. You can take up to 25% of your pension pot if you are aged 50 or more. You can also take an income drawdown instead of an annuity. There’s a lower return but you get greater flexibility (about 50% of what an annuity would deliver at the moment) plus you could always move to an annuity later.
Of course, if you mentioned a retirement date to your pension provider (like I did to Standard Life) you’ll have to wait until then to avoid the horrendous and totally unjustifiable penalty. In my case this penalty is 20% of the fund! The robbing bastards 
Disclaimer:
Given that I am not a financial adviser, please don’t base your own pension decisions on anything you read here. However, do look at your pot regularly and see if there’s anything you can do to improve your lot. For example, if you were retiring now you would get about £10k income for every £100k in the pot with an annuity and about £5k income on income drawdown (assuming no capital reduction). Given that the average pension pot is around £33k there will be a few disappointed pensioners in the coming years…
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