Check Out That Flexible Access Small Print

Now’s the time to check the retirement dates on pensions if you plan to take advantage of flexible access from April 2015.

From that date, a retirement saver can draw cash from their pension and spend it as they wish.

But a lot of pensions have two pieces of small print to check in advance.

For instance, if you have a set retirement date of 65 years old on the pension, the provider can insist you do not draw any cash until that date even though you may be 55 years old next year and want to take some money.

If this is the case, you can either start another pension and set the retirement date at 55 years old or, if you have more than one pension, transfer the cash to the other scheme if the retirement age lets you do so.

Compare the rates

Of course, the problem with a pension transfer is this could cost you money, so ask the provider for a pension transfer value before making any decisions

And don’t forget to check the receiving scheme will be ready and able to pay out under flexible access from when you need the money.

The other small print to look at very carefully is whether any pension you are transferring out of or drawing cash down from has a guaranteed annuity rate.

It’s likely only pensions from the 1990s and earlier have this clause written into them.

A guaranteed annuity rate is what it says on the tin – a payment rate written into the pension that the provider guarantees for your life.

Old pension contracts dating back 20 years or more often have guaranteed annuity rates of 5% or more.

This means that they can pay out at twice the rate or more of a modern annuity.

If you are not sure whether you have a guaranteed annuity rate, ring the provider and ask them for confirmation and the rate the scheme will pay so you can compare the figures with other investments and annuities.

Guaranteed annuity rate

Having a guaranteed annuity rate means it is unlikely you will find a better place for your money than your existing pension.

Besides shopping around, a couple of other points to think about include:

  • What happens to the rate guarantee if you drawdown on the pension – some providers cancel the guarantee under these circumstances
  • Does the guarantee include income for a spouse or dependent if you die?
  • Is the guarantee index linked?

“Shopping around is always a good idea, especially if you qualify for an impaired or enhanced annuity rate due to health issues,” said a Pension Advisory Service spokesman.

Below is a list of some related articles, guides and insights that you may find of interest.

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