Alternatives To Pension Drawdown

While pension drawdown offers a range of benefits, it won’t suit everyone. Thankfully, other retirement income options are available, with the most obvious being annuities.

These pension drawdown alternatives involve swapping your pension savings for a guaranteed income (often for life) from an insurance company.

Keep reading our guide to annuities to find out more.

Annuities As Non-drawdown Retirement Solutions

Since the pension freedoms were launched on 6 April 2015, pension savers have been afforded greater choice and flexibility over how they take their retirement income.

One of the retirement income options that became widely available was flexi-access drawdown, which has enabled retirees to access their pension funds as and when they need and keep the remainder invested for the opportunity to grow the value of their pension pot.

Prior to the pension freedoms, the only real option for pension savers was to take a 25% tax-free lump sum and use the remaining funds to purchase an annuity for a guaranteed income.

With the emergence of alternative retirement strategies and dwindling annuity rates, annuities have become gradually less popular over the ensuing years. But recent economic uncertainty and an uptick in annuity rates have put annuities back in the spotlight. 

Key Types Of Annuities As Retirement Income Alternatives

If you are looking for non-drawdown retirement solutions, there are various types of annuities to consider:

Lifetime Annuities

Lifetime annuities pay a guaranteed income for life. As far as pension drawdown alternatives go, lifetime annuities offer the greatest peace of mind that your hard-earned retirement income will never run out or be eroded by market fluctuations.

Just remember that you cannot change your mind once you purchase a lifetime annuity.

Fixed-term Annuities

Fixed-term annuities pay a defined income over a set period (anywhere up to 25 years). At the end of the term, you receive a guaranteed maturity value which you can either take as cash or put towards another retirement income option.

This is the ideal halfway house if you don’t feel ready to commit to the permanency of a lifetime annuity.

Single Life And Joint Life Annuities 

Single and joint life annuities provide non-drawdown retirement solutions for individuals and couples respectively. Single life annuities pay a regular income that stops when you die, unless there is a pre-agreed guarantee period.

Joint annuities continue to pay out to a spouse, civil partner or dependents – though expect lower starting rates.

Enhanced Annuities

Enhanced annuities are designed to provide higher annuity incomes if you have a health condition or lifestyle factors that could foreshorten your lifespan.

Some of the medical conditions and lifestyle choices that can warrant enhanced pension annuity rates include diabetes, cancer, heart disease, smoking and obesity.

How To Determine If An Annuity Is The Right Choice For You

Whether it be an annuity or pension drawdown, each presents a very different retirement income option. Which is the right choice for you will depend on a variety of different factors.

Your preferred income option will ultimately hinge on your attitude to risk and the amount of flexibility you require. 

If you want peace of mind that you will never run out of money, then the security of an annuity’s guaranteed income is bound to appeal.

However, if you would rather have greater flexibility and aren’t averse to managing the unpredictability of investments, you might prefer drawdown.

Either way, it is always good practice to seek financial advice to ensure you make the right decision for you and your loved ones.

Professional and impartial advice can often make all the difference to your retirement planning. Learn more about Hilltop’s Pension Drawdown service

Pension Drawdown Alternatives FAQs

Are There Any Age Restrictions Or Eligibility Criteria For Specific Retirement Income Alternatives?

The minimum age that you can buy an annuity is currently 55, rising to 57 in 2028. The upper age limit of when you can buy an annuity will vary depending on the provider.

Bear in mind that the older you are the better your annuity rate is likely to be, so if you are in good health it can often pay to delay buying an annuity wherever possible.

What Is The Difference Between A Fixed-term Annuity And A Lifetime Annuity?

The main difference between a fixed-term annuity and a lifetime annuity is that a fixed-term annuity will pay a guaranteed income every year over a set period of time (up to 25 years typically), while a lifetime annuity pays a guaranteed income for life.

As such, a fixed-term annuity provides slightly more flexibility than a lifetime annuity.

Can I Combine Different Retirement Income Options To Create A Personalised Strategy?

Yes. It is possible to adopt a blended approach when it comes to your retirement income options. It doesn’t have to be an either-or situation.

Rather, you can enjoy the best of both worlds (security and flexibility), such as with a fixed-term annuity and a smoothed investment fund that protects against the effects of market volatility.

Pension Drawdown Advice

Learn More About Pension Drawdown

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Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

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