How to boost your retirement income
The credit crunch means many people's pensions have taken a hit. But, as Moneywise TV explains, it is possible to boost your retirement income by as much as 30%
Few decisions in life are as important as the one you make about how to use your pension.
Whatever you decide will influence your income for the rest of your life – and the right choice could increase that by 30% or more.
So what do you need to do?
Before you retire your pension provider will write to you with details about the annuity it’s offering. An annuity is the most common way to take an income from your pension and it provides a regular income for life.
But you don’t have to opt for the deal offered by your pension provider. Instead you have the right to shop around for an annuity - this is known as the open market option.
Make sure you use this right to get as much as possible out of your pension pot because once you’ve picked one you can’t change it.
Firstly, decide whether you want a single or joint annuity. The income from a single one will be greater than the one from a joint annuity, but a joint one could be ideal if you’re married or have a partner, as it will provide security for them if you die before them.
Other options can be built into your annuity too. For example, you can inflation-proof it but to do this you need to take a lower income initially.
This is also the time to speak up about any health conditions you might have or any bad habits such as smoking as for once it may make you more money. It may mean you’re eligible for an enhanced annuity that provides a higher income. How much more you’ll get will depend on the severity of your condition, but it can be anything from 10% to 50%.
You may also get an enhanced rate if you live in certain postcodes or have a dangerous job.
If you can afford to delay buying an annuity you can gain financially in several ways. Your pension fund may continue to recover and grow. Annuity rates may also rise and the older you are the higher the annuity rate you’ll get.
The drawback is that annuity rates could fall in the interim, but even if they do, there’s an argument that other factors pushing your rate up are likely to outweigh any fall.
You have to buy an annuity at the age of 75 if you haven’t already done so but before then there are other options available. However, these are all quite complicated so it’s best to seek the advice of an IFA.
If you decide to opt for an annuity you can compare rates by going to the FSA website. Again, if unsure, it’s best to seek the advice of an IFA.