When taking out a Personal pension, the amount of money you receive as an income is going to largely depend on "annuity rates". For those retiring now, the effect of these has become all too apparent.

A male aged 65, buying an annuity with his pension plan in July 1990 would have received approximately £1,460 a year for a fund of £10,000. Today, that figure is about £900. The unfortunate thing about buying an annuity when rates are low is it is fixed for the rest of your life.

At the moment rates are at their lowest for 40 years, and show little signs of going back up. Indeed, the fear is that they may well go down over the medium term. And many people retiring now may be in the position where their spouse has very little in the way of pension provision and so would generally include the cost of a widow's pension. This further brings the amount of pension down to, currently, about £724 (including two thirds spouse's benefit).

One way round this problem might be to use a 'Pension Fund Withdrawal' facility. Much has been written about this, saying you need large funds and a high risk investment strategy to obtain a bigger pension.

Here, rather than lock into an annuity straight away, you leave the money invested where it grows virtually tax free, and take an income from it, and buy a pension at a later date.

Say someone needs to provide a substantial spouse's pension and the money were to be invested in a cautious fashion, say, in a With Profit fund, by taking an annual bonus rate of, say, eight per cent as income, it can provide a ten per cent higher pension than having bought a widow's pension at the start.

If you died while income was being taken, the whole fund would be available to the spouse instead of, perhaps, two thirds.

Traditional annuities offer cast iron guarantees but with rates so low, many people are now looking at other options such as Pension Fund Withdrawal, and Phased Retirement. These new flexible plans can offer many opportunities but, as they are fairly complicated and your pension fund is often your major asset when you retire, it is very important to make sure you get Independent Financial Advice from a pensions specialist. They may not be suitable for everyone, but it is vital that you explore the possibilities.

Readers can obtain a free factsheet on Pension Fund Withdrawal by telephoning 01484 860123.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

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