When it comes to retirement the challenge for most of us is whether to go for a secure retirement income, guaranteed for the rest of our lives. Or leave ourselves invested and take different levels of income from our pension as our circumstances change.
It’s usually a choice of one or the other. Do you give up your pension for that certainty of income for the rest of your life? Or do you stay invested with the potential for your pension pot (and withdrawals from it) to grow but also with the risk they could fall and you run out of money?
Well now there is the opportunity to have your cake and eat it! The best of both worlds.
A secure retirement income inside a SIPP
Up until recently, if you wanted a secure retirement income you would have needed to use your pension to purchase an annuity.
You would have had to contact the various annuity providers and find the best income rate that suited your needs. Once you had decided, the pension closed and the annuity was up and running. That’s it. You got the income into your bank account for the rest of your life.
Now, if you have retirement savings built up in a Self Invested Personal Pension (SIPP), you can allocate a proportion of your savings to purchase a secure retirement income for life.
This works very well if your State Pension doesn’t cover all of your regular fixed outgoings like utility bills, Council Tax and food etc. You know you need to pay these bills for the rest of your life and would struggle to survive if your money ran out, so why not secure income for this spending for life?
The secure retirement income sits inside your SIPP and pays out to your SIPP cash account. You can then still decide how much is withdrawn.
Death benefits are available on a reducing scale on secure retirement income, and also the ability to cash it back in for a lump sum. This helps protect you a little if you were to die soon after taking the secure retirement income, or your circumstances changed.
If you’re someone who will slide into retirement gradually by reducing work or even take time out of work before going back, this solution could also work for you.
Typically, once you take income from a SIPP on a flexible basis you are restricted to only being able to contribute up to £4,000 back into a pension. This is called the Money Purchase Annual Allowance (MPAA).
So if you left work, took income from your pension for a while and then went back to work, you would be restricted in what you could put back in.
With this solution, your secure retirement income could be held in your SIPP cash account or invested back into your SIPP investment funds. You could also still then pay in the £4,000 separately.
Secure retirement income – who’s it for?
This solution could suit the following type of people:
- You have a low attitude to risk.
- Other sources of guaranteed income like the State Pension and defined benefit pensions do not cover all your essential spending.
- You want to take some risk off the table and secure some retirement income but still want the flexibility with a pot that could grow or be left as a legacy for your children.
There is currently only one provider and SIPP that is offering this solution in the market. If you would like to discuss your retirement income in more detail then take advantage of our free 15 minute call. You can speak to a Chartered Financial Planner who will listen to your situation, give you an outline of what you need to consider and guide you in the right direction.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.