Retirement Planning Planning for your retirement isn't easy and you may think you will be financially secure by getting a state pension, but I'm sure you know of somebody or have heard from somebody that being a pensioner is not a time of great wealth, unless you have something more than a state pension to look forward to. At retirement age your pension will come from one or a combination of: The basic state pension will not give you the home comforts that you may want or need at a time when you have worked all your life and want a bit of 'me time'. It's never too late to plan for retirement but obviously the earlier you do put plans into action the better off you will be at retirement age. State Pension Pensions from current and/or former employer or self employed Investment income generated from savings and accumulated wealth There are different ways in which you can plan ahead and having a Personal Pension plan is one where you can determine how much you want to pay into the scheme. This will provide you with an income at retirement age and an optional lump sum to do something you have always wanted to do but kept putting it on hold. With the new allowances you can pay in up to one year's income into a pension and still receive tax relief at your highest tax banding i.e. £0.40p in the pound, if you are a high rate tax payer, so maybe it is time to look at switching your savings into a pension to give you a better income at retirement. A Personal Pension plan allows you to move providers, if required. However it would likely be associated with a cost and it also permits you to change the monthly payments so that it is always manageable. There are other options to plan for your future retirement besides a pension plan which could involve you being in charge of your investments or maybe you could use your business assets towards your retirement planning. The Open Market Option If you are close to retirement, you have probably heard of an ‘Open Market Option’ or OMO, but what is it and why is it so important? WHAT IS IT? It really is quite simple: the Open Market Option allows you to take your pension fund and use any retirement solution from any provider you like. It gives you complete flexibility to choose how you take an income in retirement. In the vast majority of cases, a retirement solution means buying a Lifetime Annuity. Therefore the Open Market Option means you can shop around for the best Annuity rate. It is unlikely that your existing pension provider will offer you the best Annuity rate, but only by shopping around, looking at other providers and potentially using the Open Market Option will you know who does offer you the best Annuity rate. IS IT REALLY WORTH SHOPPING AROUND? Yes, definitely. There can be as much as 30% difference between the best Annuity provider and the worst, if you just accept the Annuity offered by your existing provider you could end up with less income, each and every year, than if you had shopped around. Furthermore, by shopping around you will also be able to find out whether due to health or lifestyle issues you qualify for an Enhanced Annuity, which may increase your income still further. DOES EVERYONE USE THE OPEN MARKET OPTION? No, but they should. Only around a third of people who buy an Annuity use the Open Market Option, which means two thirds of people have not shopped about for the best Annuity rate or checked whether they qualify for an Enhanced Annuity. Once you have bought an Annuity it can never be changed; not shopping around and getting an uncompetitive deal can be an expensive mistake, which you will have many years to regret. WHY IS IT SO IMPORTANT? There are a few reasons: Using the Open Market Option allows you to consider all the different retirement income options. After all, a Lifetime Annuity may not be suitable for you. A Fixed Term Annuity, Investment Linked Annuity or indeed Income Drawdown might be a better options. If you do decide to buy a Lifetime Annuity, shopping around and using the Open Market Option is the only way of ensuring that you get the best possible Annuity rate. You should always check whether or not you qualify for an Enhanced Annuity. The best way of doing this is use the Open Market Option. DOES IT COST ANYTHING? No, your existing pension cannot charge you for using the Open Market Option. Furthermore, most Independent Financial Advisers will not charge you for shopping about for the best Annuity rate or checking whether you qualify for an Enhanced Annuity. In summary, use the Open Market Option. It is the only way of guaranteeing you end up with the best possible retirement option for your circumstances and the best Annuity rate if that is the option you choose.
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