Until a few years ago, people with private pension plans had a fairly straight forward choice when it came to taking their benefit.

You took part of the money as a Tax Free cash sum and the remainder of the money was then used to buy a pension, or "annuity". The only real choice was whether to include a spouse's pension and whether or not you wanted the pension to increase each year. The downside to this was that substantial amounts of money could be "lost" on early death. In addition, because annuity rates vary, the amount of benefit you could purchase with your fund could go up or down depending on the current rate.

Today there is a much wider choice, including With Profit annuities, Phased Retirement plans, and Pension Find Withdrawal. At this point many people may give up because they start getting confused, and yet the pension you choose may dictate your lifestyle for the next 20 or 30 years. Getting it right is everything. The fundamental point to remember is that none of them are the "best route" for every circumstance. There are pros and cons to each one, including traditional annuities, and it is important to find out exactly what each option may or may not offer you.

Of the new options, the "With Profit Annuity" is the simplest to understand. In essence you receive a pension from retirement date which may start higher than a traditional annuity and may be increased by the addition of bonuses depending on the performance of the insurance company.

While there is a risk attached that future returns may be lower, they are set up in such a way that the required "growth" to maintain the starting level is relatively low. As with traditional annuities, a widows pension and guaranteed payment period can also be included.

Phased Retirement plans are a half way house where your plan is set up as a series of 1,000 separate plans and you simply buy a traditional annuity with the segments as and when required. This offers more control over planning your income in retirement and locks you in to guaranteed annuity rates as and when benefits are taken. It can also mean that the whole of the unused fund stays invested until you buy an annuity and can have advantages on early death when it comes to providing widows benefits. As each "segment" will consist of part pension and part tax free cash, it can prove a very useful tool in planning your income and controlling the amount of tax you pay.

At the top of the tree Is "Pension Fund Withdrawal", where instead of locking in to annuity rates, the money remains invested and withdrawals are made from the fund. This carries the highest inherent "risk" but can also give the opportunity for the most flexible benefits in retirement when it comes to income control. Again it can be very useful for cases where the spouse has little provision on his or her own account. Often a combination between Phased and Withdrawal is used to maximise the spouse's benefit.

It may take quite a time to understand exactly what each type of plan offers, but it is well worth the effort when you consider that it will provide your income for the rest of life.

A free factsheet on Retirement Options is available by ringing 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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