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Retirement Planning

Retirement is probably the most significant financial event in your life. You make the transition from accumulating funds while working to converting those funds to an income which should provide for you for the rest of your life. One of the most important considerations in this period is what to do with any pension fund you have built up. When you reach retirement you will have to make some decisions regarding your future income provision. Assuming you have built up a pension fund you will have the following options;

1. You convert your pension fund into an annuity


The majority of clients that build a pension through their working life will purchase an annuity at the time of retirement. They will agree an annuity rate with their pension provider and this will be their income for the rest of their life.


When converting your pension fund into an annuity you should consider using your open market option. This allows you to source the market to secure the best annuity available. Our experience shows us that clients can often increase their income by 20% compared to the annuity quoted by the pension company. You only get the one opportunity to do this - once you have agreed with an insurance company, there is no going back.

2. Income drawdown


Another option that may suit many people upon retirement is using their pension savings to set up an income drawdown arrangement, we usually recommend a client considers this when they have over £100,000 in a pension fund.

Income drawdown allows the saver to take an income from the pension pot, without having to convert to an annuity.  It also allows you to benefit from further market growth until such times as you take your savings out of the markets. To make use of an income drawdown facility you do require further pension advice, but if suitable is well worth considering.

3 Fixed Term Annuity

As an alternative to securing an income for life you may want to consider using a Fixed term Annuity. This product allows you to convert your pension fund to a fixed income for a pre determined term rather than for life. The benefit of this route is you can defer the full conversion of the fund to an annuity for life which gives you the opportunity to maximise death benefits and retain control of your other options such as spouses benefits.  


For example, if the person was about to retire with £100,000 as a pension fund after taking Tax Free Cash he could either secure an income for life or use a fixed term annuity. The income for life option means he has to decide if he wants inflation proofing, a pension for his wife on his death and depending on his health whether he qualifies for an enhanced annuity. All the above considerations will impact on his income and taking the income for life annuity gives no opportunity to change the decisions later. If he were to use the Fixed Term Annuity he could take a single life option without inflation proofing over a five year term. At the end of 5 years he has a guaranteed maturity value which offers the same options as above, i.e. annuity for life or fixed term. In those 5 years his personal situation may have changed, his health may have suffered or his wife may have died, either of which would make a big difference to the annuity decisions he would make at the time. In a worst case scenario he could have died, the fixed term annuity would offer a option for the spouse to continue to draw income which would be a great deal higher than the income protected by the annuity for life. By deferring the decision using a fixed term annuity the client has ensured he has all the options available to him for as long as possible.

The value of investments and income from them can fall as well as rise and you may not get back the amount invested. Different types of investment carry different levels or risk and may not be suitable for all investors. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and

its risk profile, you should seek independent financial advice either call us directly on                                      

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