Martin Lewis regularly laments the low interest rate environment the UK finds itself in and yesterday, he was forced to address how this was impacting pensions. The Money Saving Expert was queried on whether buying an annuity or going into drawdown was the best option for retirement.
A man named John wrote in and detailed he had over £90,000 in his pension pot and he asked Martin directly if he should buy an annuity or go into drawdown.
In response, Martin acknowledged this was the “million dollar question” many retirees struggle with.
To get more insight, Martin turned to Kaya Marchant, a special guest on the show who was a pensions specialist at the Money and Pensions Service.
Kaya had the following to say: “It’s the question that we do get asked a lot Martin as you can imagine.
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Martin went on to give his own views on annuities: “Yeah I mean, annuity rates are appalling at the moment because interest rates are so low.
“I would express it like this, annuity is a bit like a fixed rate mortgage you know what you’re going to get but the rate might not be very good.
“Drawdown is variable, you can hope it’s going to perform better for you but it may go wrong.
“Without a crystal ball you won’t know which one wins im afraid.”
Annuities themselves take the form of an insurance policy that provides income for the rest of one’s life.
The annuity can be bought with money held within a pension pot.
Up to 25 percent of a pension pot can be taken as tax-free cash, with the remaining 75 percent used for the annuity.
It should be noted that tax is levied on annuity income in retirement.
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