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Discover Annuities and Their Alternatives

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The Difference Between The Best And Worst Pension Incomes Can Be Very Surprising

Pension Annuity and Income Drawdown Providers...
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Looking for an alternative to an annuity? Visit our Pension Release page.

Annuity or Capped Drawdown?

Which One Will You Choose?

Don't Make an Expensive Mistake

If you're like most people, then purchasing an annuity will represent one of the most important decisions of your life. It's also likely to be one of the most expensive single purchases you've ever made.

For many, the cost of their annuity is up there with their home in terms of purchase price. Therefore it's not a decision to be taken likely.

Unlike a house, once you've bought an annuity you're stuck with it - you can not simply sell it and buy another one if you do not like it. What's surprising is that many do not take the time to even shop around for the best annuity, let alone look at the alternatives that are available and that may provide a better solution for them.

One reason for this, is that annuities and their alternatives can be difficult to understand, hence we've produced this simple introductory guide to help you to understand the basics.

What is an Annuity?

With an annuity, what you're doing, in effect, is selling your entire pension fund to the annuity provider (an insurance company). In return they promise to provide you with a certain level of income for the rest of your life.

The amount of pension income you can expect to receive is dependent on many things including current annuity rates, your age, size of your fund, your health and the options you choose. All of these can have a significant effect on your retirement income.

What is Capped Drawdown?

With capped drawdown you do not sell your pension fund, it continues to be invested and managed. Meanwhile, you draw your income directly from your fund.

The amount of income you can expect to receive is dependent on the amount you wish to take and the size of your fund, subject to the government's defined limits. The amount of income you can receive and the performance of your funds are normally reviewed every three years. In addition, capped drawdown allows the option of taking up to 25 per cent of your fund as tax-free cash should you want to, for instance, immediately clear your mortgage or any debts you may have.

Capped drawdown provides a lot more flexibility than an annuity, as your pension fund still belongs to you. You have the option of using your fund to buy an annuity at any time in the future and you can vary the income you take when you want to. Your fund is still part of your estate and can be passed down to your beneficiaries when you die.

Annuity v Capped Drawdown Guide

Which Should You Choose?

Understanding The Basic Differences Between Annuity or Capped Drawdown

This general guide is not financial advice, and shouldn't be acted upon in isolation. For financial advice you should always consult a Financial Conduct Authority (FCA) registered, qualified Financial Advisor. This guide is just a simple introduction to the concepts of both an annuity and one of the key alternatives to an annuity - capped drawdown.

Annuities and capped drawdown can be a bit confusing at first. When you start looking at all the options you have to consider, and the way that your income, guarantees and spouse's benefits are affected by each option or change in your circumstance, you may find it quite difficult to grasp.

Whilst the table below will give you an overview of the main options associated with annuity purchase and capped drawdown, it's by no means comprehensive. It should however put you in a good position to start your conversation with a qualified IFA about the best options open to you.


Capped Drawdown

Yes - highest is "single life level income" with other options reducing the income amount.

Monthly Income?

Yes - equivalent to a "single life level income" from an annuity. You can choose to take less than this (which may help your fund grow further) and can vary your income when it suits.

Yes, up to 25%.

Tax Free Cash Option?

Yes, up to 25%, and you can do this at any time over the age of 55.

Yes, fixed from day 1.

This means you must choose all your options right at the start, based on your best guess of how long you believe you and your spouse will live, which of you is likely to die first, and what your future needs will be.

Guaranteed Income
Until You Die?

Your fund will normally be managed with that as a goal, although specific fund performances can never be guaranteed.

Regular reviews give the option of changing your income or buying an annuity at any point.

No - your income level (including escalation if chosen) is fixed from day 1.

Flexibility To Change Monthly Income Level If Desired?

Yes, you can change the amount you take, or choose to buy an annuity, at any time.

No - your fund now belongs to the annuity provider.

Do You Still Own Your Fund?

Yes, your fund is yours and forms part of your estate when you die.

If you chose to protect them they will receive some income, however your income will be reduced from day 1.

If you did not take this option then the annuity provider retains the fund and your spouse receives nothing.

If You Die Before Your Spouse?

They can choose how to benefit from your fund, including:

Keep drawing income from the fund.

Use the fund to purchase an annuity on their life.

Take the fund value as cash, subject to 55% tax.

If you chose to protect them then your income will have been reduced from day 1 without your spouse ever having received any benefit.

If Your Spouse Dies Before You?

You can choose who benefits from your fund on your death, and you didn't have to reduce your income when considering your spouse's potential future needs.

Looking for an alternative to an annuity? Visit our Pension Release page.

Why Use an IFA?

1. A Financial Adviser may be able to secure a better deal than you may be able to achieve.

2. An IFA is more likely to have access to a wider range of possibilities than you.

3. Due to their ongoing relationships with providers, they may be in a better position than you to overcome any problems which may arise with your application.

4. You'll have an expert point of contact should anything go wrong or need prompt attention.

5. They work to a set of guidelines laid down by the Financial Conduct Authority (FCA) who regulate IFAs' policies and working methods.

6. IFAs have got an interest in recommending the correct product for your particular circumstances. They'll not wish to fall foul of stringent Financial Conduct Authority (FCA) regulations.

7. If you choose not to get Financial Conduct Authority (FCA) registered IFA advice, you may not be able to get compensation through the Financial Services Compensation Scheme if you have a future complaint about the recommended product.

Make Contact Now

Take action now and uncover the full differences

Receive a FREE Pension Annuity and Capped Drawdown Comparison Quote

Please complete the free no-obligation enquiry form to contact your personal adviser and see the surprising differences between products. Remember your enquiry is free.

There is no charge for us investigating your policy and you are under no obligation to follow any recommendations that are made.

By using an IFA's service you will get advice that is paid for by the annuity company. You will not have to pay them a fee as your IFA will receive a commission payment direct from the recommended annuity company. Your adviser's costs are already factored into the income that you are offered by the annuity provider. Commission is paid, but this can be refunded should you wish to pay via a fee.

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