Ask the Expert: How much income will my £350,000 pension generate?

Carl Lamb of Smith & Pinching (inset) on how much income your pension will generate

Carl Lamb of Smith & Pinching (inset) on how much income your pension will generate - Credit: Getty/Smith & Pinching

This week our reader wants to know how much income their pension will generate. 

Reader question: 

I’m in my early sixties and beginning to think about what my life will be like when I retire in a couple of years’ time.

I’ve been saving into a personal pension in addition to my employer’s scheme and so have a total of around £350,000 in pensions.

What level of income will this generate?


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Carl Lamb of Smith & Pinching responds:

This isn’t a question that I can answer off the cuff, I’m afraid: it very much depends on a whole range of factors surrounding your financial circumstances and the type of pension income you take.

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There are two primary ways to generate income from your pension fund: annuities and flexible drawdown.

Annuities are income for life plans that you can purchase with a capital amount. With an annuity, the level of income you receive is set at the outset, although some inflation-proofing can be built-in. The income level on offer will vary: if you have a health condition or family history of problems, for example, annuity providers may consider you to have a shorter life expectancy and offer a higher level of income.

Flexible drawdown has become the more popular option for many retirees. With flexible drawdown, you draw an income directly from your fund, leaving the remainder invested for potential future growth. You can opt to take different levels of income at different stages of retirement but it is important to monitor and review the value of your fund and the performance of your pension investments throughout retirement.

Annuities and flexible drawdown have different options on offer for what happens when you die. An annuity may provide a pension for a spouse or civil partner but won’t have a residual value to leave to your heirs, although protection can be built in to account for you dying early in your retirement. With flexible drawdown, on the other hand, any unspent pension can be bequeathed to heirs either as a lump sum or as pension.

The period in the run-up to your retirement is an important one where a number of important decisions will need to be made. I strongly recommend that you take independent financial advice from a Chartered Financial Planner so that you can understand what your options are and make informed choices that will give you the retirement you desire.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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