In the new series, we will answer your burning money questions …
Should I pay a pension with pension savings?
I want one piece of security, but I thought it was of low value, so I went away.
However, prices are said to be improving. AC Leeds
Complete the puzzle: pension rates are rising at the fastest pace in over 30 years
Rachel Likert Strauss and Ruth Jackson-Kirby’s Reply: Pension rates are rising at the fastest pace in over 30 years, so it’s understandable to ask if it’s finally worth considering again.
With annuities, you can exchange a lump sum from your annuity pot for lifetime guaranteed income.
They provide the peace of mind that your income will never be exhausted even if you live decades after retirement.
Still, until recently, pensions were unsupported as the annual income they provided fell to a record low.
Now they are rising again. The average pension rate has increased by up to 24% over the past year.
A 65-year-old with no serious health complaints who received a £ 100,000 single pension at this time last year would have purchased an annual salary of £ 4,905. According to William Burroughs, a pension expert retirement planning project, today £ 100,000 will buy you £ 6,083 income-an additional £ 1,178 each year.
Rebecca O’Connor, Head of Pensions and Savings for the investment platform Interactive Investor, said: But the table may be spinning now.
Pension providers – insurance companies – receive your lump sum and invest it to generate income.
They tend to invest in fixed income because they are low risk and generate reliable income. However, bond yields are at record lows, limiting the amount that pension providers can offer to buyers as an annual income. As bond yields have risen this year, so have pension rates.
However, they can rise further. This is because the Bank of England is expected to continue raising interest rates to curb inflation spikes. As the base interest rate rises, so does the bond yield.
When you buy a pension, it becomes the final one. You cannot renegotiate at any higher rate.
But if you need the credibility that a pension provides, there is a way to do it without giving up flexibility. It buys several pensions at various points in your retirement.
This gives you the peace of mind that you will not fall into poverty, but it also means that one pension does not lock out all your pension savings.
Helen Morrissey, an analyst at the Wealth Platform Hargreaves Lansdown, said: This means that some of your pensions can be pensioned to generate income to cover your daily costs, leaving the rest invested and growing.
One option is to take out a pension that covers your basic living expenses and invest the rest of your pension more flexibly.
According to the Pension and Life Savings Association, a basic post-retirement lifestyle costs about £ 10,900 per person.
The annual income of the national pension is £ 9,628. Therefore, to make up for the shortfall, a 65-year-old must receive a £ 25,000 pension. This brings the annual income to about £ 1,400.
When buying a pension, keep in mind that the older you are, the higher your income will be.
If you go to a pension, there are some decisions you need to make that affect your level of income. First, you can choose between a level pension that pays a fixed amount each year or an index-linked pension that increases your income each year with inflation.
The latter option seems desirable, as inflation is skyrocketing above 9% annually. However, they are very expensive to buy.
If a 65 year old buys a single pension for £ 100,000, he can get £ 6,083 a year without inflation protection, but if he wants to increase his income each year with the inflation index of the Retail Price Index, he can get £ 3,479 a year. Will be.
William Burroughs said: ‘For most people, state pensions form the basis of their retirement income. It is by definition protected from inflation.
“Therefore, inflation-protected pensions are so expensive that it usually doesn’t make sense to pay extra. Your income will be eroded over the years and more in later life. If you realize that you need income, stock release can be an option if you own your home.
Second, you must decide whether you want a single pension that you pay until you die or a communal life pension that both you and your spouse pay until you die. If the nominated pensioner dies, the income is usually reduced by one-third or one-half.
Finally, investigate whether you can get an enhanced pension pension. These bring higher incomes to people who are in good health and have a shorter life expectancy than average.
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