Pension Options for Over 55s Simplified

Pension Drawdown for the over 55s

If you have a UK Pension and you are over the age of 55 it may have occurred to you that you can
access your pension for a lump sum and or income, be it to buy a holiday home or provide
retirement income. So what options do you have? These are simplified below:

  • Option 1. Buy an Annuity:

    Temporary or Whole life

    Temporary Annuity: Spend your money on a 3, 5 or 10year capital protected temporary Annuity.
    This will provide an income for the term with some capital returned at the end of the term (that can
    be reinvested in another temporary annuity) or on death during the term. These can be set up on a
    joint life basis or own life basis.

    Fixed Whole life Annuity:

    This option is a no risk income Annuity, ie, giving your pension pot to an Annuity provider in return
    for a guaranteed income paid for life; this can be sole or joint life. This gives peace of mind to those
    cautious risk investors who want to know ther income is safe. However, Annuity Rates are linked
    closely to Interest rates and therefore the income is likely to be lowly in comparison, and if a joint
    Annuity and some form of indexation chosen then the income will be lower still. Also on death of the
    Annuitant/s the income stops and the money is gone.

    Taxation of annuities here in Spain: With all Annuities (be it temporary or whole life) only a very
    small proportion of annual income taken is taxed here in Spain and they are therefore very tax
    efficient.

  • Option 2. Drawdown: Capped (GAD) or Flexible

    Capped Income Drawdown:

    Means what it says. The income withdrawals from the pension fund are
    limited under the Government Actuaries Department, (GAD) a set limit which is reviewed every
    three years. It may be possible to transfer to a Flexible Drawdown scheme, however strict rules
    apply. These are not now available to new applicants however if you have one this should be
    reviewed.

    Flexible Drawdown:

    The ability to take money as and when required from your pension, with no
    restrictions. A simple example: if 5% pa of the fund is taken and the pension makes 5%pa growth
    after all charges then the pension pot would remain static, i.e. the same value. On the other hand, if
    the pension increases by more, this would provide an increase in the pot or income but could go
    down of course.

    Quite often we find that not all UK Pension Providers offer the Pension flexible Drawdown Options, if
    your pension is a Final Salary Scheme, or some older style personal pensions then flexible drawdown
    is not available without a transfer to a Sipp or QROPS.

    With both of the income options above when you die anything left in the pot is available to your
    beneficiaries such as a spouse. In addition, should you be in poor health then there is no need to
    purchase an annuity.

    Taking a Lump Sum:

    UK pension Schemes all Provide for 25% of the pension scheme value to be
    taken as a UK Tax Free Lump Sum. Under UK Pension Freedoms it is possible to take all of your
    pension pot as a cash lump with the excess being taxable.

    Note: 25% of the plan value is available tax free to UK tax residents only. This Tax-free allowance
    is not available to Expats who are Spanish Tax residents, in Spain whether Lump Sums or ad-hoc
    withdrawals are taken from UK pensions they are all liable for tax in Spain.

The biggest concern most people have is how long will the pot last before it runs dry and what are
my investment options?

We can run an analysis of all available options for you and give advice as to which one is the right
one for you. For the correct pension advice please contact andrew.gibson@blacktowerfm.com or
call him on 603 612 464

The above information was correct at the time of preparation and does not constitute investment
advice and you should seek advice from a professional adviser before embarking on any financial
planning activity.

Blacktower Financial Management Ltd is authorised and regulated in the UK by the Financial
Conduct Authority and is registered with both the DGS and CNMV. Blacktower Financial
Management (Int) Ltd is licensed in Gibraltar by the Financial Services Commission (FSC) and is
registered with both the DGS and CNMV in Spain