Tag Archives: Retirement Years

What is an Annuity Calculator?

For those consumers who plan on purchasing an annuity with their pension savings, an annuity calculator can be a very beneficial and useful tool. An annuity calculator is a guide used by consumers to help gauge exactly what type of income they can expect to be paid to them once they have retired. There are several factors used to determine income amount and the annuity calculator takes these factors and computes a reasonable estimate of income. While the number is truly just an estimate, it can be used by the consumer to better plan for the future. This means more accurate budgeting and planning for after the working years.

Consumers should always consult with an annuity calculator, most of which are free and easily accessible on the internet, before making any kind of retirement or investment decisions. This is because the annuity calculator can help the consumer to better understand what they can expect from their retirement. This proves incredibly beneficial to the consumer, especially the consumer who does not truly understand how their annuity works or what amount of income they should expect from their built-up pension savings.

Most annuity calculators ask for the same information in order to compute income amount. Fields include such factors as age, health status, and estimated current pension value. Having an annuity calculator determine estimated income amount is crucial for any consumer who is looking to use their pension savings to fund an annuity. Most consumers need to at least have some kind of understanding of what their income will be once they have ceased working. This allows for more sensible planning and investing. For those consumers who are diligent in their planning, consulting with more than one annuity calculator can help to better estimate retirement living. It can determine the accuracy of the estimate and allow consumers to rest assured that they have a grasp of what their financial future may be once they have retired.

For consumers who use an annuity calculator to help estimate their income after retirement, they must keep one crucial fact in mind. Annuity calculators should truly only be used as a guidance tool. They are not perfect and they do not always compute the exact income amount that can be expected, especially given that there are so many different annuities, all of which have different advantages and disadvantages and some that will even pay out more over an expected shorter period of time, such as an enhanced annuity. Despite the idea that annuity calculators can only give income estimates, they are truly worthwhile and beneficial for those consumers looking to better manage their retirement years.

What are Pension Triviality Rules for Small Pension Pots

Many consumers who have smaller sized pension pots would ultimately like to withdraw their pension in one lump sum payment. This one lump payment can often come in quite handy for many consumers who are on the verge of embarking on their retirement years. They are able to pay off debt before retiring, fund a vacation, or even put some money in the bank for any future emergencies that may arise. However, there are rules that govern how the lump sum can be taken and under what conditions it is actually possible to do so.

In order for a consumer to take their pension pot as a lump sum, they must be at least 60 years of age. The qualification for taking the lump sum also depends on the size of the pension pot in that only smaller sized pots can be taken as a lump sum. A consumer may qualify if one of their pension pots is worth £2,000 or less. They may also qualify for the lump sum if the total of all of their pension pots equals £18,000 or less. If the pension pot is £2,000 or less there are some very specific rules that need to be followed in order to extract the funds as a onetime lump sum payment and these rules depend on the pension scheme used.

For those whose total of all pension pots equals £18,000 or less, the consumer may be able to take all of their pension pot contents as a lump sum. This can be done even if the consumer has started to take from one of their pensions. This kind of lump sum is referred to most often as a “trivial” lump sum, or a “trivial commutation”.  There are guidelines by which consumers can take their payment as a lump sum under this scheme. First, the consumer has to remove all of their savings from each one of their pension pots, if more than one, within the same pension scheme as a lump sum. These cannot be broken out or paid out individually. They can be paid out separately only if they are from different pension schemes. Secondly, the consumer must have all of their pension pot savings valued on the same date, which is not to exceed three months out from the date they would take their lump sum. This is to ensure that the valuation is accurate and still within the guideline parameters.

If a lump sum is taken by the consumer instead of their small pension before they began to get that pension, only 75% of the lump sum is eligible to be taxed. However, if the consumer had already been getting payments from their pension and then decided to take the rest as a lump sum, the entire lump sum payment is eligible to be taxed.  The amount of tax paid by the consumer will depend on their total income for the year.

In order for a consumer to take all of their pension pot as a lump sum, they should contact their pension scheme administrator to ensure that their scheme allows for a lump sum payment. Then the consumer will be able to have their pension pot(s) valued to ensure that they meet the criteria and eligibility for removing their pension contents in the form of a onetime lump sum payment. For many consumers, receiving the lump sum, if eligible, can be incredibly helpful when trying to fund retirement years. It can be used to pay off debt, fund a vacation, or be used to ensure that healthcare or long term care is in place.