Ask the Expert: I just want a fuss-free pension - what should I do?
PUBLISHED: 10:49 08 February 2018 | UPDATED: 10:49 08 February 2018
I get stressed and suffer sleepless nights at the thought of sorting out my pension - what should I do? Carl Lamb of Almary Green responds.
I will be retiring next year and have built up a reasonable pension through my work.
I’m not very good with money matters – I don’t really understand about investments – and whenever I need to do anything about my finances, I get very stressed and don’t sleep for days.
When I retire, I just want to organise a regular payment from my pension so I have a bit more than my state pension. I’ve read some leaflets about taking pension payments under the new rules and it all sounds very complicated and I’m frightened I won’t be able to cope or I might run out of money. What can I do?
Response from Carl Lamb of Almary Green
You are right that the new flexible pension rules are a little more complicated than when the only option with your pension fund was to buy an income for life – known as an annuity.
You now have the option to make withdrawals direct from your pension fund as and when you need it. This is known as flexible drawdown.
There are lots of advantages to this approach: for example, you can vary the amount you take from your pension pot according to your needs rather than take a fixed level of income; your fund remains invested for potential continued growth; and there are opportunities to leave any unspent pension to your heirs on your death.
However, it does require you to make conscious decisions about where your fund is invested, ideally reviewing your fund at least once a year, and to plan carefully to ensure that your money doesn’t run out.
The good news is that a financial adviser can play a key role in helping you manage a drawdown facility for your pension, meeting with you regularly to ensure your needs are being met.
Having said that, annuities are still available and are a perfectly valid solution for some people. They too have their advantages.
Importantly, they will provide you with a guaranteed income for the rest of your life. In addition, they can be set up to increase in line with inflation and to provide a spouse’s pension, if required.
Their drawback is that buying an annuity normally involves spending your pension pot all in one go and the amount of income you get may be disappointing, as rates have been low for some time now.
However, it sounds like you would be more comfortable with an annuity option and frankly, if that is the case, that may be a good reason to go down that route.
Nevertheless, please do make sure that you take advice when you come to sort out your pension and make sure you shop around. Remember: the pension company where you’ve had your money invested while you are working may not offer the best rates for retirement income.