Martin Lewis compares pension annuity against drawdown
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Martin Lewis regularly laments the low interest tate environment the UK finds itself in and yesterday, he was forced to address how this was impacting pensions. The Money Saving Expert was quiried on whrher buying an annuity or going into drawdown was the best option for retirmeent.
A man named John wrote in and detailed he had over £90,000 in his pension pot and he asked Martin directly if he shoul buy an annuity or go into drawdown.
In response, Martin acknowledged hits was the “million dollar question” many retirees struggle with.
To get more insight, Martin turned to Kaya Marchant, a special guest on the show who was a pensions specialist at the Money and Pensions Service.
Kaya had the following to say: “It’s the question that we do get asked a lot martin as you can imagine.
“Really, it’s always going to come down to someone’s individual circumstances and requirements.
“With the annuity, they can get guaranteed income for life secured.
“With drawdown it’s more flexible, but they could run out of money if they if the investment doesn’t perform very well, or they draw it down too quickly.
“They do have other options available to them, they can book in their free appointment with Pension Wise to understand all of their options.”
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Martin went on to give his own views on annuities: “Yeah I mean, annuity rates are appalling at the moment because interest rates are so low.
“I would express it like this, annuity is a bit like a fixed rate mortgage you know what you’re going to get but the rate might not be very good.
“Drawdown is variable, you can hope it’s going to perform better for you but it may go wrong.
“Without a crystal ball you won’t know which one wins im afraid.”
It should be noted that these are not the only options retirees have available to them.
According to Pension Wise, savers can take the following actions with their pension pots in their later years:
- Leave it untouched in the hope that it will grow further
- Get a guranteed income through an annuity purchase
- Get an adjustable income
- Take cash from pensions in chunks
- Take the whole pot in one go
- Mix the above options
Annuities themselves take the form of an insurance policy that provides income for the rest of one’s life.
The annuity can be bought with money held within a pension pot.
Up to 25 percent of a pension pot can be taken as tax-free cash, with the remaining 75 percent used for the annuity.
It should be noted that tax is levied on annuity income in retirement.
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