Contemplating the new retirement income options

The new proposed options are:

- Annuity: now with ability to reduce lifetime income and add longer guarantee periods.

- Flexi-Access Drawdown: like current flexible drawdown, but without minimum income requirement. Payments taxed at marginal rate after tax-free lump sum taken.

- Uncrystallised fund pension lump sum: ad hoc lump sums to allowed ‘phased’ access. Each sum is made up of 25 per cent tax-free portion and remainder taxed at marginal rate. Money can of course be taken as a single lump sum under this option and invested elsewhere - or spent.

Mr Morrison says advisers should understand what assets the client has and a do a full fact find of their financial circumstances, their wishes for retirement and any other financial commitments they might have/want.

So he suggests cash flow modelling might be a good idea for many clients.

John Perks, managing director of LV Retirement Solutions, agrees the best retirement income solution will very much depend on a client’s individual circumstances.

He says clients should be encouraged to consider all the options available, but it is important to consider: the size of their pension pots; whether they have any alternative sources of income or assets such as equity in their property; whether they want to take an income immediately; their tax position; their health; and their risk appetite.

Those with a lower attitude to risk and low capacity for loss should still look for a guaranteed income, says Richard Williams, director of The Annuity Bureau from JLT. Mr Williams says individuals who cannot sustain any fluctuations will find an annuity is still their best course of action.

Those with larger overall benefits may decide to guarantee some income, Mr Williams says, yet continue to invest a proportion to make use of the flexibility that comes with such products as a drawdown accounts.

He says the retirees in the middle may want a bit of everything and will make the most of the new flexible and innovative products that will inevitably come to market next year post-April.

Mr Williams says: “Provide education for the member from, say age 50, to aid them make an informed choice and give them access to impartial advice from a financial planner specialising in ‘at retirement’ work.”

Stephen Lowe, group external affairs and customer insight director at Just Retirement, says the clear challenge presented by this year’s Budget is to turn the greater choice now on offer into better outcomes by encouraging long-term decision-making.

Recent figures suggest 11.9m people aren’t saving enough for retirement, he says. Around 750,000 people reach retirement age each year, mostly facing a retirement income significantly below what they had earned, Mr Lowe adds.

The key factor is attempting to maintain their standard of living through what could be a long retirement, he says. A picture of the reality of the retirement your client is facing needs to be painted.

Mr Lowe says: “State pension will have an important role but on top of this people should be looking for secure income to cover their core costs knowing it will be paid come what may.

“Only once that is taken care of should they consider being more adventurous with how they deploy any remaining assets.”