‘Start thinking about it!’ Britons urged to boost retirement savings – drawdown vs annuity

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The Retirement Podcast Cafe gives expert advice

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Pension saving can be a monumental decision, but is important to millions planning for later life. However, there are various options Britons can take when it comes to a retirement journey.

Regardless of which one a person picks, a top expert has warned it is vital to act early to ensure one is amply prepared. 

Express.co.uk spoke exclusively to Karen Barrett, the founder and CEO of Unbiased.co.uk

She said: “It’s never too early to start thinking about your retirement because there is no one-size-fits-all solution. 

“Your private pension income will depend on the size of your pension pot and what you’re willing to do with the funds in it.”

If a person wishes to boost their pension pot, they can do so in a number of ways.

Consolidating different pensions, for example, could help people get rid of underperforming pensions.

Pensions which lag behind may ultimately impact how big of a pension income a person receives. 

Ms Barrett added: “Increasing your contributions, deferring your state pension and doing your homework on what you’ll need in retirement will help you plan effectively.”

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But for money saving purposes, the expert also urged Britons to consider the different ways they can take income from their pension arrangement.

Individuals will be able to withdraw up to 25 percent of their pension tax-free, in a major perk for saving in this way.

They should be aware, however, the rest will be taxed as a normal income. 

However, a point which is interesting to note in the current climate is the distinct difference between annuity and drawdown options. 

Following the increase to the Bank of England’s base rate, experts have estimated annuity rates could soar.

The option, which provides a regular income for life, has fallen out of favour recently when compared to drawdown – viewed as a more flexible choice in retirement, allowing savings to potentially grow.

Broadly speaking, Ms Barrett states people can achieve higher income in the shorter term for drawdown.

But this could prove less reliable than the guaranteed income from an annuity.

She added: “With drawdown, you can eventually run out of money if you take out too much, and/or if the stock market performs badly. 

“The annuity will never run out – the snag is that the annual income may not be as high as you’d like. 

“Some retirees find that a mixture works well for them: an annuity for reliability, and a drawdown fund for flexibility.”

Regardless of what pension path Britons opt to take, it will be key for retirement income to be boosted.

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This is particularly the case given general rising life expectancy and Britons spending a higher proportion of their lives in retirement than ever before.

Ms Barrett concluded: “Consider other ways to boost your retirement income including equity release, downsizing or working part-time. 

“Getting the right advice for your retirement is crucial, whether you are five or twenty five years away from retiring.”

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