Pension based on targeting Annuity, Encashment and Flexible Access

[TopStar74]

Joined a new company from New Year and reading all the Group Personal Pension documentation.

So what I understand is that there are 2 important choices to make - the level of risk and the type of retirement income I want. I have clearly made up my mind about the level of risk based on either Adventurous, Balanced or Cautious. However, I don't have a clue right now about what type of retirement income I want from the 3 choices (Annuity, Encashment or Flexible Access) There is not a lot of documentation anywhere to advice/guide on what is the best option to go for now, based on currently being completely unaware of what I might eventually choose at the time of retirement. I checked the pensionsadvisory website. I also googled for a few terms which mainly brings up US related websites talking about everything in Dollars, so I stayed away from them, as they may not be relevant.

I have chosen Adventurous. The problem is that after having selected this risk level, I am now having to decide, do I go for -
- Adventurous Targeting Annuity
- Adventurous Targeting Encashment or
- Adventurous Targeting Flexible Access

Any guidance or input will be gratefully received!

Thank you!

[bungeejumper]

Not my field, strictly speaking, but the only pension plan that comes up on Google with an Adventurous Flexible Access policy is Scottish Widows, which outlines its options at http://www.scottishwidows.co.uk/extrane ... oc/45770IG. I think the 'glidepath' illustration on Page 3 tells you as much as I can, with more details on Page 9.

For Scottish Widows, at least, there's no difference between the first three approaches until you get within 5 years of your planned retirement date. After that, the strategies diverge, with the Encashment target taking the fewest risks and Flexible Access the most.

The right one for you will depend on your future needs and those of your family - are you likely to require the guaranteed security of an annuity, or will you have enough capital to allow you more flexibility if (for instance) the stock market is in a deep slump when you happen to retire? Are you likely to want to take out the max cash so as to help your kids with Bank of Mum and Dad loans? Will you be downsizing your house, so as to have an additional cash pile? All sorts of questions, in fact.

This decision is far too important to be taking without personal advice! Your employer will have (access to) a pensions adviser, who is legally obliged to help with your choice, and they'll be better placed than anyone on this forum to help, once they've asked you some (probably quite searching and personal) questions about your circumstances.

FWIW, hardly anybody goes for Annuity plans these days - they are a lousy deal, except in 'impaired life' situations. And most people are probably gearing toward the Flexible Access route, which broadly takes advantage of the drawdown arrangements in the 2015 changes. But don't let anybody persuade you one way or the other until you've had proper advice.

BJ

[bungeejumper]

Sorry, I should have made myself clearer. It doesn't matter which of the three options you go for - you can still opt to cash in the entire pension pot when you retire (or at any time after 55, actually) - or else draw some of it down and leave the rest invested, or whatever you choose. That's your right under the 2015 pension reforms. Your pension fund is your money, and nobody else's.

All that Scottish Widows is doing with these three options is fine-tuning your pension pot during the final five years so as to give the most favourable final outcomes under each of these three scenarios. If you chose a Cash outcome now and then changed your mind within five years of retirement and went for an Annuity, all it might possibly mean is a slightly lower result than if you'd gone for an Annuity target all along. Either way, the money would be yours to spend as you wish.

So does it really matter which option you choose, then? Well, it might be more important if you were transferring all of your existing pension pots into the new plan. But either way, nothing's going to diverge until you're within five years of your planned retirement date. Which doesn't have to be the same as the state retirement age, of course. Can be any age after 55.

BJ

[swill453]

If you chose a Cash outcome now and then changed your mind within five years of retirement and went for an Annuity, all it might possibly mean is a slightly lower result than if you'd gone for an Annuity target all along.

Or a higher result, of course.

Scott.

[TopStar74]

Thanks so much Bungeejumper and swill453.

You've made it very clear to me. Yes it is Scottish Widows. I will probably go for the Adventurous Flexible Access and see what happens in 15-20 years

Thank you!