Following the removal of the obligation to purchase an annuity and the recently announced associated reduction in the exorbitant 55% lump sum tax charge on crystallised retirement funds, many retirees will be tempted by the prospect of drawing a regular income from their pension pots.
Under the new rules, they will be able to withdraw as much as they like subject to the payment of tax at their marginal rate. As the fund will remain invested, they will continue to gain or lose according to market price movements. However this is fine as long as the investment return exceeds the amount drawn down. Regrettably in many cases this will not happen as many of those at or in retirement are likely to take out an unsustainable level of income which could rapidly deplete the value of their pension pots.
It is estimated that the average income falls by 40% upon retirement* at a time when it is unlikely that the demand for funds will be any lower because of the need to remain occupied all the time, and the desire to enjoy retirement life to the full.
For the above reason, it is probable that an increasing number of people are considering the release of the equity tied up in the homes to supplement their retirement incomes. Drawdown Lifetime Mortgages and stage payment Home Reversion Plans are designed to provide regular sources of cash which can be used to supplement pensions. In this way, the combination of a drawdown pension and a drawdown equity release plan can support a higher retirement income whilst at the same time preventing the value of the pension pot from being depleted too quickly.
Drawdown equity release plans can be entered into with inheritance protections for your beneficiaries which might be family members- indeed, the cash reserve is often used to enable parents to see their children and grandchildren enjoy their inheritance during their own lifetime.
A specialist adviser firm like Bower can explain how the different plans work and make a suitable recommendation for meeting your specific income needs. Being independent and impartial, Bower provides a free initial consultation at which family members are welcome to attend.