If you have either a personal or stakeholder pension or have been part of a workplace stakeholder pension scheme or group personal pension scheme also known as defined contribution schemes, you may think that when you retire, the pension provider will start paying you a regular pension. But this is not quite right. You will need to take the money you have saved up in your pension fund and use it to buy an annuity. This is a financial product which guarantees to provide you with an income for your retirement.
If you want, you can take up to 25% of the money in your pension fund as a tax free lump sum and use the rest to buy anannuity.You can use the lump sum for whatever you want, but you will not have as much money to buy an annuity, so your pension income could be lower. It’s best to seek financial advice if you are unsure about whether to take a lump sum.
You will need to be able to make some choices about the type of annuity you want to buy. You could just choose to buy the annuity which your pension provider will offer you, but you don’t have to. There are lots of different types of annuity on the market and you may find one which offers you a higher rate of income and is better for your personal circumstances.
It’s important to spend a lot of time choosing the right kind of annuity for you because, once you’ve bought it, its possible that you won’t be able to change your mind and switch to another one.
Annuity rates vary enormously between pension providers; the pension provider may not price their annuities according to health or lifestyle, they might have one annuity rate that fits all; apathy on behalf the annuitant can play a part – why offer competitive rates if the majority of your customers do not shop around?
It matters little who the pension provider is, in all cases those looking for an annuity should shop around to get the best annuity income, particularly if they fall into one or more of the following categories…
â€¢ overweight for height
â€¢ high blood pressure
â€¢ high cholesterol
â€¢ history of illness
â€¢ Certain Postcode Areas
Other Options Available:
Most people with a money purchase pension choose to buy a lifetime annuity when they retire. However, you do have some other options. You don’t have to buy an annuity straight away when you retire. In some circumstances you may decide to put off buying an annuity, perhaps because you want to carry on working or have an income from somewhere else.
Prior to April 6th 2011 it was compulsory to purchase an annuity. However, it is now possible to defer annuity purchase indefinitely as a result of revisions to income drawdown and introduced flexible drawdown legislation. However, beyond age 75 you must have a minimum income of Â£20,000pa, known as a secured pension, if you want to continue with drawdown.
If you decided not to buy an annuity now, you could choose to take money directly from your pension fund while leaving some of it invested. This is called income drawdown or income withdrawal. Income Drawdown and Flexible Drawdown carry risks and may provide less income than a traditional annuity.
Remember, you can’t change your mind once you’ve bought an annuity so it’s best to look at all the options before making a decision and you should get advice from an independent financial adviser before making a final decision about how to invest your pension fund.
Annuity advice without obligation:
Pension providers are unlikely to give any advice to help people decide which retirement plan is the most suitable for their needs. Any information they offer will be restricted to their own conventional annuity, so it is imperative that everyone considering an annuity shops around. Buying an annuity direct is not cheaper and in many cases can be more expensive. It is well worth taking time talking to a professional annuity adviser.
Help and advice arranging an annuity
We have a fully qualified independent professional annuity advisers ready to help you decide which annuity is right for you, whether that be a conventional annuity, fixed term annuity, impaired life annuity or income drawdown product.
Furthermore, they help with the application and administration procedures to ensure a seamless transfer of funds from pension provider to annuity provider. Along the way they will keep you informed at all stages and provide you with documentation of how and why they made a particular recommendation.
Finally, should you require our services for other financial matters, for example investments, inheritance tax planning, mortgages or life assurance then our wealth of financial knowledge is available to you.
Call Life UK Finanancial on 01233 754062 or via email firstname.lastname@example.org and we will arrange for you to speak to an adviser.
In what was possibly the most-leaked Budget in history, Osborne today confirmed a number of expected measures, including a cut in the top rate of income tax and moves to avoid the child benefit “cliff edge”.
Here is our brief run-down of all of today’s key announcements
The Office of Budget Responsibility (OBR) has revised upward its forecast for UK growth this year – to 0.8% from 0.7%. Growth next year will be 2%, it said, then 2.7% in 2014 and 3% in the two years after that.
Inflation, Osborne said, would ‘remain low’ at 2.8% in 2012 and 1.9% next year.
Borrowing this year will be Â£126bn – Â£1bn less than forecast in the autumn. It is then predicted to be Â£120bn in 2012/13 and Â£98bn in 2013/14. Forecast to fall to Â£21bn by 2016/17.
Just to confirm what the world and his wife already knew, Osborne sais the top rate of income tax will be reduced from 50p to 45p from April next year.
The point at which people start paying income tax – the personal allowance – will be increased to Â£9,205, also from April next year.
Corporation tax will be reduced by 1% (from 25% to 24%) from next month. It will then be reduced by a further 1% next year and the following year, meaning it will be at 22% by 2014.
There will be a simplified tax system for small firms with a turnover of up to Â£77,000.
The controversial child benefit cuts announced at the last budget have been modified, and will only be withdrawn from those earning more than Â£50k per year, and this will be “gradual”. Only earners of Â£60k per annum or more will see the complete removal of child benefit.
The government will examine linking the state pensions age (SPA) to life expectancy.
There will also be the introduction of a new single-tier state pension to be set above the means test at a minimum of Â£140 a week. This will take effect from April next year and more details will be released in the spring.
‘Robin Hood’ Budget
After reducing the top rate of income tax, the government was under pressure (particularly from the Liberal Democrats) to ensure the rich contributed fairly to the state.
So Osborne announced the following measures…
There will be a new cap on tax reliefs set at 25% of total income for anyone claiming more than Â£50,000 in a year.
Meanwhile, in a nod to the Liberal Democrat idea of a â€˜mansion tax’, Osborne proposed a new 7% stamp duty on properties worth more than Â£2m, to come into effect from midnight tonight.
He also detailed plans to clamp down on stamp duty avoidance by using companies to buy expensive properties.
The headline measure will be a 15% stamp duty rate on properties worth over Â£2m “within corporate envelopes”.
Well, in what may be the most-leaked Budget in history, the Chancellor will reduce one tax – the 50p income tax rate – and replace it with a myriad of other taxes on the rich.
The top rate of tax will be reduced to 45p from April next year (although the BBC’s Robert Peston has questioned the purpose of a delay and wonders whether it will instead be implemented immediately).
Although a ‘mansion tax’ on homes worth Â£2m or more has been ruled out, a rise in stamp duty is being considered, and there may be a trade-off next year between a 40p top rate and a wealth tax, which is favoured by the Liberal Democrats.
Elsewhere, Osborne is expected to raise the tax-free personal allowance. It will rise to Â£8,105 a year next month, to about Â£9,000 in April next year – a big step towards the Liberal Democrat goal of Â£10,000.
Also he will make announcements relating to pensions tax relief, ISA allowances, VCTs, stamp duty, tax avoidance and child benefit.
Up to 100,000 people who would not normally have a large enough deposit to qualify for a mortgage, usually about 20 per cent of the price of the property, will be able to buy a newly built property with a downpayment of just 5 per cent.
Under the NewBuy guarantee scheme, launched on Monday, property developers will contribute 3.5 per cent of the purchase price and the government will guarantee a further 5.5 per cent.
Grant Shapps, housing minister, told BBC Breakfast: â€œI think it is the best deal possible for homebuyers. The average age of the first-time buyer, in particular, has gone up dramatically â€“ it is nearly 37.
â€œThe problem is not that people cannot afford the mortgages, rates have been low for a long time. They can afford the monthly repayments, they canâ€™t get the deposit together because unlike in the past, you canâ€™t get 95 per cent mortgages which operated fine for decades in this country.â€
Although high street banks have agreed in principle to support the scheme, they still had serious reservations, the Financial Times reported last week, wanting to charge an interest rate of 5 per cent or more, while housebuilders were pressing for less than 5 per cent to make sure they attracted first-time buyers.
Barclays, Nationwide Building Society and Natwest, part of state-backed Royal Bank of Scotland, were the first lenders to reveal details on Monday of the 95 per cent mortgage rates they will offer through the scheme. These ranged from a 4.29 per cent two-year fixed rate offered by Natwest to a five-year fixed-rate at 5.99 per cent offered by Nationwide.
Barratt Developments said on Monday that the scheme was already attracting â€œenormousâ€ customer interest.
The government is also rebooting the right-to-buy scheme, first launched under Margaret Thatcher in the 1980s, where council tenants can buy their homes at discounted rates. The programme is open to 2.5m council tenants and the government is looking to sell about 100,000.
The money made from selling council properties to tenants will be used to build more affordable homes, rather than depleting the social housing stock.
â€œIt enables not only the person who wants to buy their own home to get a foot on the housing ladder but it also releases the cash tied up in that property for another property,â€ Mr Shapps told the BBCâ€™s Today programme.
But housing campaigners including Shelter, the homeless charity, say that the new homes could still be significantly more expensive than those they replace, as affordable rent is defined as 80 per cent of the market rent.
â€œThey will be generally much more expensive than social housing,â€ Campbell Robb, chief executive of Shelter, told Today.
People who bought their council homes on right-to-buy schemes were also a third more likely to get into debt and face repossession, he said
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Your home may be reposessed if you do not keep up repayments on a mortgage.
The Bank of England’s Monetary Policy Committee maintained the base rate as some experts predicted it could be held at the same rock-bottom level for another three years – causing great pain for savers.
But lenders have recently started to put up their mortgage costs, including Halifax and RBS-NatWest, amid the weak economy and the fallout from the eurozone crisis.
The Bank also held its quantitative easing (QE) programme – otherwise known as money-printing – at Â£325 billion after last month’s Â£50 billion cash injection.
Economists have said it would take a seismic change in the economic and inflationary landscape to bring higher interest rates back to the table.
The combination of low rates and high levels of QE have been particularly painful for savers and those approaching retirement, although most homeowners have benefited, given the bank’s base rate stood at 5% in October 2008.
The typical savings rate has plummeted from 6.52% in 2008 to 2.78%, since the bank started cutting borrowing costs.
It is thought that more than Â£100 billion is sitting in accounts which pay no interest, according to Bank figures, compared with around Â£15 billion-Â£20 billion in the years before the financial crisis.
Meanwhile, around Â£90 billion has been knocked off the value of final salary pension schemes due to recent QE measures, according to the National Association of Pension Funds.
The Bank’s Governor, Sir Mervyn King, has repeatedly expressed his sympathy for savers but has said the stimulus measures were needed to help the economy.
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There have been quite a few changes to savings rates, pensions & Life & Health cover recently so it may be well worth a financial check-up. That way, you can make sure that your money is still working hard for you.
Because we only use Independent Financial Advisers and have a panel of General Insurance brokers, our well qualified advisers can look at a wide variety of products to find the ones that may benefit you most.
Get in touch to see if a Financial Health check would be useful for you.
the renewal for our commercial van insurance went up from Â£795 last year to Â£1790 this year, without any accidents or claims and when I inquired why the premium had rocketed up so much, I was told it was because insurance had gone up for young drivers. The Broker informed me that they had found a better quote at a cost of Â£1,358, and that it was the cheapest they were able to find. Our Engineer is only 25 years old. The premiums they were asking would have meant it was no longer feasible for us to employ our Engineer. When I spoke Life UK Financial, I was called by Adrian Flux and gave them all the details, including the fact that our Engineer has two endorsements on his license (which are 2 years old) the quote they came back with was Â£711. Thank you so much Life UK for finding us this quotation – it literally has meant the difference of Damian being able to continue to work for us and drive our van. Richard Wall
Banks should brace themselves to withstand the “extraordinarily serious and threatening” economic situation, the Bank of England governor has said.
The Bank’s Financial Policy Committee (FPC) said the eurozone crisis was the biggest threat to the UK’s banking system.
It said banks should build up their financial buffers to withstand that.
Bank governor Sir Mervyn King said the Bank itself was making “contingency plans” in case of a eurozone break-up.
However, he would not go into any details as to what these were.
Sir Mervyn said it did not make sense to say that there was “a single well-defined event against which we have to make contingencies”.
He said: “There are many ways in which the future could play out. Maybe it [the eurozone] won’t break up, maybe it will continue in various forms, but maybe there will still be questions of default.”
On Wednesday, six central banks, including the Bank of England, took action to encourage lending between banks in order to keep the global economy moving.
But Sir Mervyn said that, “ultimately, governments will have to confront the underlying causes”.
“Resolving these wider problems is beyond the control of any UK authority,” he added.
Earlier, president of the European Central Bank (ECB), Mario Draghi, told the European Parliament that “downside risks” to the eurozone economic outlook had increased.
Dividends and bonuses
Sir Mervyn said that the UK’s banks were among the strongest in the world, with tier 1 capital ratios – an internationally respected measure of a bank’s strength – at well above 12%.
That is higher than they were before the credit crisis began in 2008.
Sir Mervyn said one way for UK banks to gain further strength would be to raise money by issuing new shares.
The FPC also said that banks should keep lending, but should cut dividends and bonuses in order to help build up their financial reserves.
Some bankers argue that tighter capital requirement rules mean lower lending, as banks are forced to hang on to assets as a contingency, rather than pass it on to borrowers.
The chief executive of Royal Bank of Scotland, the bank now majority-owned by the UK government, said recently that strict regulation meant investors saw UK banks as a “dumb” place to invest, and that it limited banks’ ability to lend.
The FPC is chaired by Sir Mervyn, and at present only has an advisory role.
Once the legal framework is in place, it is expected to become the country’s top financial regulator from the start of 2013.
Housing minister Grant Shapps is to call on lenders to consider offering fixed mortgages of up to 30 years to encourage greater market stability.
Mr Shapps will tell a seminar in London he wants to spark a national debate on longer-term fixed mortgages as a “normal and sensible choice”. There are currently no mortgages with guaranteed lifelong interest rates, and longer term deals often require hefty deposits.
Mr Shapps believes greater use of “portable” deals, where borrowers are able to move house and keep their existing mortgage, could make deals more appealing. “Cap and collar” arrangements – where the interest rate on a loan can only move within limits and borrowers are not liable to sudden repayment increases – will also be touted as positive changes.
Mr Shapps is expected to say: “In today’s uncertain world, people want to know where they stand.
“Yet, when it comes to buying a home, there are no mortgages available for them where they can fix their payments for a long time – the longest fixed-rate mortgage for many is five years.
“Longer term mortgages – possibly as long as 30 years – could help families on tight budgets know exactly where they stand when they’re buying a home, by giving them greater certainty over how much they will be paying for their home in years to come.
“While they won’t be right for everyone, lenders should start to look at the case for 30-year mortgages and how we can move to a more stable housing market where first-time buyers can get their first foothold on the property ladder at a cost they know they can afford.”
Mr Shapps believes new funding can be brought into the market because of the increased certainty longer-term mortgages can bring.
He will argue such changes could open up new finance to give first-time buyers and those without much equity in their homes a better chance of getting a foot on the ladder. He will tell the Building Societies Association’s Annual Mortgage Seminar the Government wants to see stability in the housing market and with interest rates in the long term.
But the minister will also say consumers have deep-rooted expectations that they can and should be able to shop around for a better rate, and do this frequently during the term of their mortgage.
Paul Broadhead, head of mortgage policy for the Building Societies Association, responded to the announcement, saying: “We welcome the prospect of an inclusive debate on any measures which will help lenders lend and consumers borrow.
“We also endorse the Government’s aim for a stable and, we presume, active housing market. “Longer-term fixed-rate mortgages have been offered in the past but with limited consumer demand. Ten-year rates are currently available and lenders do respond with new products where demand exists.” He went on to warn against ‘one-size fits all’ approaches, saying: “The challenge with fixed-rate mortgages is always the balance between price and flexibility for the consumer.
“The more flexible a fixed rate is, the more expensive it is for lenders to fund with the knock-on higher cost to consumers. We are keen to hear more about the minister’s ideas on new sources of long-term market funding.”
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