There are various charges that you can incur when you set up and run a pension.
For a more detailed run down on charges see pension costs article
To learn how you should go about setting up a pension, read our article on setting up pensions.
The question of when to start saving into a pension is one that crops up time and time again.
There is no “best time” as everyone’s situations are different.
Every situation needs to be mapped on its own merits and a bespoke map of the future put in place for the individual who is considering this question.
However it is safe to state that as a general rule of thumb, the earlier you can start, the better.
Annuities are financial products which convert capital into income. They are used within pensions to take the sum saved and accumulated over many years and to turn it into an income.
Annuities come in many different forms, the central characteristic in pension terms is that they generally guarantee an income for life.
A deferred annuity is an annuity that begins from a future date.
A recent innovation in the Pension planning arena has been the arrival of Variable Annuities. They are usually set up as a type of capped drawdown arrangement offering a range of underlying investments which often come with a guarantee of income for life. Some providers also guarantee the value of death benefits.
How do they work?
If you take out your variable annuity, your provider sets a guaranteed income for life based on your age. As the plan is often invested in funds, its value fluctuates in line with the investment performance of those funds. At regular intervals your provider reviews the variable annuity and if the funds are worth more, your guaranteed income can increase in proportion to the fund increase (although there may be a cap on that increase). If the funds are worth less, then your guaranteed income will not fall.
Is my income guaranteed? Yes, income is guaranteed for life at the rate set when you take out the variable annuity.
Considerations While income is guaranteed for life, the level at which this is set is likely to be lower than that available from a conventional annuity. You need to accept that if the investments do not perform well, then you may be worse off than if you had taken out a conventional annuity at the outset. There are also additional charges associated with the investment of funds that can reduce the return you receive.
To learn more, see ‘Are you Mad to buy Annuity in 2014?’ and the ‘New Retirement Options’.