More choices at retirement

The popular choice for retirement income is a lifetime annuity, which provides a guaranteed pension income for life however, there are additional choices available dependent on individual circumstances.  The Government introduced some additional options with effect from 6 April 2006, providing increased choice.

The following table provides a brief summary of the options available at retirement and looks at the main advantages and disadvantages of each

Options	Advantages	Disadvantages
Lifetime annuity	Gives you a fixed income for life.	Inflation could eat at the value of your income.
Increasing lifetime annuity	Your income is safe and should keep in pace with inflation.	Buying an annuity that increases each year is quite expensive, so initial income would be low compared to a non-increasing annuity.
Short-term annuity	Pays you an income for up to five years, giving you the flexibility to buy a lifetime annuity later.	Depending on investment growth and annuity rates you may not benefit from waiting to buy your annuity.
Value-protected annuity	If you die before age 75, your estate will receive the difference between the amount you paid for your annuity and the income you’ve been paid, less tax.	This is likely to be more expensive than a guaranteed lifetime annuity. You’ll get no benefit from the additional cost if you die after age 75.
Income drawdown	Gives you greater flexibility around taking income and allows you to keep your pension fund invested. Your remaining pension fund will be paid to your estate when you die, less 35% tax.	Ideally you need a pension fund of at least £100,000. Leaving your fund invested exposes you to more risk. Annuity rates could get worse while you’re using income drawdown, reducing your income when you come to buy an annuity.
Alternatively secured pension	As above but after age 75.  On death a lump sum can only be paid to charity or to another member's fund.	Only really suitable if you have a large pension fund. Leaving your fund invested exposes you to more risk.

This is purely an overview of each of the options potentially available.  The choices you take at retirement are very important and you should always seek advice in considering your options.