An annuity is the most common form of ensuring you receive a set income for the rest of your life. But as they're no longer compulsory, what are your options?
If you're looking to buy an annuity to provide you with a regular and reliable income, there's two main ways to do it:
The previous coalition government made some changes to the way you can access your pension savings. Prior to 6th April 2015, you had to buy an annuity with your pension pot.
With the new legislation, you can choose to be in control of your entire pension fund yourself, without the need to buy an annuity with it.
You might choose to invest it in stocks & shares, property, ISA’s etc, spend it, or invest some of it, and still buy an annuity, or simply live off it - the choice really is yours.
Annuities still offer the better option if you’re looking for a guaranteed income, it’s just important to make sure you shop around to find the best rates for you.
Options for smaller pensions
On the other hand, if you have a very small sum of money in your pension and this is not enough for an insurer to be prepared to offer you an income, you can simply take this whole sum as cash.
Other means of funding retirement could come from saving money somewhere other than a pension, like a straightforward bank account or Individual Savings Account (ISA).
Like a pension, this is only an option if you have saved enough, which usually means putting aside a reasonable sum of money over the course of your working life.
Some experts say this should work out as 15 per cent of your lifetime earnings by the time you retire.
One final option is to raise money through the sale of your property, after which you downsize to a smaller home.
Or you could look into equity release arrangements which allow you to raise cash while remaining in your home, in return for giving a company taking a stake in your property.