If you had retired in 2008 with a pension fund of £100,000, you might have been able to secure a pension at age 65 of £9,890 a year. In 2008, the figure would have been nearer to £7,810 and annuity rates are not getting any better …

… so what can you do to improve your retirement income, especially considering that most people’s pension funds have taken a hammering on the stockmarkets, recently?
In essence there are a number of courses of action available to anyone approaching retirement age at the moment; some more palatable than others.

Consider deferring retirement
It has recently been suggested that those nearing retirement should consider putting off their retirement and working longer. Unfortunately, this is not something that is available to everyone, because this is one area where (unless there is a change in the law) the age discrimination laws do not work and it is still possible for employers to enforce retirement at normal retirement age. In any event, not everyone wants to carry on working; indeed, many people have their pension plans built around retiring before 65, rather than afterwards.

There are, however potential benefits in that state pension grows in deferment and private pension will have the opportunity for share values to recover. On the other hand, those lucky enough to be in a defined benefit (final salary) pension scheme could be better advised to draw benefits immediately; they may, however, be well advised to look at the financial implications of drawing the maximum possible tax free cash on the basis that once paid out, the money can be invested to provide an income that is not dependent on their continued survival.

Open market option
What everyone who is not in a defined benefit pension scheme – and that is most of us – should consider is that the insurance company with which their pension fund was built up will almost certainly not be the company offering the best annuity rates.

What the company may not be keen to tell you is that you have the right to take your pension fund to another company offering a better annuity rate; and if you are in less than perfect health, this can make an even bigger difference. You do need to ensure that you are not giving up a “guaranteed annuity rate” by moving, but these generally only apply to a single level annuity on a fixed date, rather than an increasing joint annuity at a time of your choosing.

Consider deferring annuity purchase
You may also like to know that you do not have to buy an annuity immediately. In fact you can delay until you are age 75, if you like (although waiting any longer involves complex rules). You can from age 50 (rising to 55 on 6th April 2010) draw up to a quarter of your pension fund as a tax free lump sum (well it is tax free at the moment) and leave the balance of your fund (hopefully) to grow over the next few years.

If you had a pension fund of £120,000, this would mean that you could effectively draw a tax free £10,000 for three years and then consider purchasing an annuity with the balance of your fund – by which time you will be three years older and interest rates may have recovered so that annuity rates might have improved (although there is no guarantee that this will happen, because annuity rates also depend on life expectancy, which is currently improving).

There are lots of options available and taking professional and independent financial advice is, as ever, essential.

The value of investments is not guaranteed; you may get back less than you put in. It is important always to seek independent financial advice before making any decision regarding your finances.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.