Retiring can often feel like the start of a new era, but sorting out your pension pot and deciding whether to invest it into an annuity, can feel circumgyratory.
With so many different options and a number of annuity providers begging you to invest with them, it can be a bit overwhelming but this decision should not be taken light-heartedly. After all, this is your future.
When faced with the decision of whether to invest in an income drawdown or just a fixed term annuity, you can feel like someone is spurting random words at you but that doesn’t have to be the case.
The two mentioned are very different from one another and are just two of many ways you can invest your pension pot. We’ll start with an income drawdown.
An income drawdown differs from a secure annuity income but it is much more flexible. Although, with flexibility does come a higher risk and higher complexity. The risk is evident because when you invest in an income drawdown it means you can invest your money in a number of places. So, although you can invest it in many places it does mean some will do well and some may not, it all depends on its performance.
The positive of this though, is that you could benefit quite considerably from this investment but on the other hand, you could lose a lot too. If it does grow considerably, it could grow free of UK income and capital gains tax.
Now, a fixed term annuity. This type of annuity will provide you with a guaranteed income in regular intervals, which is why this option is a safer option compared to an income drawdown. This money is paid to you in exchange for your pension pot by the company that you invest in.
A typical period of a fixed term annuity is around 3 years or up until your 75th birthday but once this fixed term ends, you can use the guaranteed maturity sum in order to purchase another type of pension product or annuity. Also, if you were to unfortunately die before the end of the term you could get better death benefits than any other types of annuity.
So, as you see, two very different types of investments and each will appeal more to one retiree than another but the key to choosing which is best for you is to speak a professional who can talk you through your options so it doesn’t all sound foreign.
By speaking to a number of annuity providers, you will also be able to compare their annuity rates which will ultimately help you make the right decision too. Like we mentioned, you do not have to rush this decision, in fact, the longer you take over it, the more research and more comparison of companies you can make.