Transcript

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So most people will receive from their pension provider an options pack as they approach retirement. And they'll set out four main options. The first being, you can stay invested. The second, you can take all of your cash. Thirdly, you can buy an annuity. Or finally, you can enter drawdown. So just to talk a little bit about what each of those mean.

So clearly, I think, we all know what taking cash would mean that you would take drawdown, the whole fund in one go. It's really important to think about the fact that only 25% of that would be tax free. The balance will be subject to income tax you. So you do need to make sure you're not going to push yourself into a higher income tax bracket than you would normally be paying.

You can also choose to leave your fund invested. If you don't need to access the money at the moment, then you absolutely don't need to take it. there's no obligation. You can choose when you want to access your pension fund nowadays. So that's definitely something to consider if you're worried about having sufficient funds in your retirement. The longer you can leave it invested, the longer you can keep contributing to it, and the shorter period you going to draw it down over, then clearly that's going to last you longer.

So an annuity is a product that provides you with a guaranteed income for life. So the insurance company-- you will pass the fund over to the insurance company and they will agree to pay you a set amount every month or every year, whatever you choose, for the rest of your life. So that ensures that you won't run out of money.

But the important thing to be aware of with an annuity is it is a one-time decision. You can't surrender annuity products. So you can't choose to take more money out of it than the company is paying you each month. So it is a one-time decision. It's something you need to be sure about doing.

Finally drawdown, so drawdown, the fund is left invested. So you are subject to investment risk, but you have complete flexibility over how much money you take. The really important thing to note with that, though, is that your fund could be exhausted before you die if you take too much out, particularly in the early years. Or if there's a poor performance in terms of the funds, then you may exhaust them before you retire.

But with both annuities and drawdown, the really, really important thing that I can't emphasize enough is that people shop around. A lot of people stick with their existing provider, which is not always the best thing to do. Your existing provider won't necessarily provide you with the best annuity rate. And the fund charges and fees on a drawdown product will vary from provider to provider.

So it's really, really important to make the most out of your money in retirement that you really do your shopping around.

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