RETIREMENT PLANNING

A Self-Invested Personal Pension (SIPP) constitutes a sophisticated and flexible retirement vehicle, offering access to a significantly broader and more diverse range of investment opportunities than traditional personal pension schemes. As a form of Defined Contribution (DC) pension, a SIPP empowers individuals with enhanced control over their retirement portfolio.

However, it is important to recognise that SIPPs are not universally suitable. Due to their comparatively higher costs and the requirement for a degree of investment acumen, they are ideally suited to discerning individuals with a substantial level of experience in actively managing their financial assets.

Pension Drawdown, also known as Flexible Retirement Income, offers a sophisticated alternative to the traditional annuity route upon retirement. Instead of committing the entire pension fund to purchase an annuity, you retain a portion of your assets invested within the pension, allowing you to draw a regular income directly from the fund.

 This approach affords the opportunity for the remaining investments to appreciate in value over time.

You may withdraw up to 25% of your pension pot as a tax-free lump sum, typically capped at £268,275. The balance of your funds is then moved into a drawdown arrangement, from which any income withdrawn will be subject to income tax in the year of withdrawal.

Careful consideration must be given to how the remaining 75% of your pension assets are invested once transferred into drawdown. Investment selections should be made in alignment with your future income requirements and appetite for risk. As investment returns are inherently variable, the income generated cannot be guaranteed, necessitating ongoing review of both your portfolio and withdrawal levels. Excessive or premature withdrawals risk depleting your capital, potentially undermining the long-term sustainability of your retirement income.

Moreover, pension drawdown can be adopted incrementally through a phased or partial strategy. With each transfer of funds into drawdown, you have the option to take up to 25% as a tax-free lump sum, while the remainder continues to grow within the pension plan. This phased approach provides enhanced flexibility, allowing you to tailor income flows in accordance with evolving retirement needs.

An annuity represents a bespoke financial instrument that may be purchased using a portion or the entirety of your pension fund subsequent to withdrawing your 25% tax-free lump sum. This solution provides a guaranteed, lifelong income, offering unparalleled financial security into retirement.

Annuities can be tailored with a range of sophisticated features, including inflation protection to preserve purchasing power over time, as well as death benefit options that enable income continuation for your chosen beneficiaries.

The income payable from an annuity may be adjusted to reflect individual health circumstances, often referred to as enhanced or impaired life annuities. Underwriters assess a comprehensive range of factors—such as your physiological profile and medical history—to deliver a personalised and potentially elevated income rate.

Such products play a vital role in delivering a dependable income stream, which can be especially valuable as you advance in age or seek to mitigate exposure to investment risk within your wider retirement strategy.

It is important to recognise that annuity rates are subject to market fluctuations and can vary significantly over short periods. Consequently, there is no assurance that rates available at the time of purchase will be optimal, which may impact the overall level of retirement income derived from your pension.