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September 2007

Q & A - PENSION PLANNING

Q. I am 50 years of age and I am looking to set aside a significant percentage of my income for when I retire. However, I don't want to pay into a pension and then see it all disappear into a black hole if I were to die soon after I retire.

A. In the past, there was only one option at retirement - you bought an annuity with your pension pot and if you died soon after you retired the insurance company from whom you had bought the annuity would keep the proceeds, less any guarantees you may have built in.

Fortunately these days there is an alternative called "unsecured" pension. Instead of buying an annuity, the pension fund remains invested in your name and you simply draw off an income each year. This means that if you were to die soon after retirement there is a much better chance of your family benefiting from your pension fund. There are some risks with this approach, it is generally suitable for larger funds and the rules are far more restrictive after the age of 75, however it does offer far greater control and flexibility than the traditional annuity route.

 
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