Annuity change will boost top pensions
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Your support makes all the difference.COMPANY executives could add thousands of pounds to their final pensions thanks to changes in the way they will be allowed by the Inland Revenue to pay themselves an annual income when they retire.
The change will allow members of small self-administered schemes, mainly company directors, to leave their pensions invested for much longer.
Members of SSAS schemes will no longer be forced to buy annuities within five years of retirement. They can now do so at any stage between retirement and age 75. This will help the many company directors who use these plans to invest in their own companies.
Ian Hammond, managing director of James Hay Pension Trustees, which manages schemes on behalf of many small companies, said: 'There is no doubt that they will grow very substantially in the next few years because the benefits are so now obvious.' The extra flexibility will allow the SSAS member to exploit changes in annuity rates.
At present, an annuity - a guaranteed income for life - pays an income of about 6 per cent on the lump sum available. This is considerably less than the average return from investments in SSAS schemes - between 8 and 15 per cent a year.
Mr Hammond said an annuity bought at 75 was on average 30 per cent cheaper than one bought at 60.
However, the insurance company London Life is warning that this arrangement, which is also available for personal pensions, is only appropriate for more sophisticated investors, who wish to manage theirpension money in retirement. Individuals can also buy flexible annuities, which allow you to take a proportion of your pension as annual payments and leave the rest invested until a full annuity is bought.
Equitable Life is already running a scheme and Provident Life is planning a scheme that allows an annual income to be paid while the rest of the money is invested.
Provident Life's scheme permits savers to pass on the unused part of a pension fund to dependants when they die, unlike traditional annuities.
John Moret, the company's pensions manager, said he hoped to receive final approval for the scheme shortly.
A number of companies, including Scottish Equitable, offer phased retirement plans. These allow savers to use part of their accumulated pension, leaving the rest to continue to be invested.
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