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Your financial choices when you retire

If you are retiring and have a pension you have saved through your company (or from more than one past employer) or a personal pension you have taken out, usually with one of the large insurance companies, an annuity is the most common form of ensuring you receive a set income for the rest of yretirement financesour life.

Your annuity does not have to come from your pension provider and chances are you’ll be able to get a better income by shopping around – you may hear this referred to as “exercising your open market option”, but all this means is that you have the right to sign up to an annuity from whichever company pays the most income.

In the UK the law used to require anyone with savings in a pension to take out an annuity with this cash by the time they turn 75 at the latest.

However this rule came to an end for certain people on 6 May 2011. You can now choose to hang onto your money as a lump sum, provided you can provide yourself with a pension of £20,000 per year.
This does not mean you have to be able to take out a £20,000 annuity, because it also includes your state pension and other forms of pension you might have, for example from a final-salary pension which pays you an annual sum without an annuity.

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.

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