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20 May 2015

Five Alternatives To A Pension Annuity For Retirement Income

Thanks to the new pensions freedoms, savers no longer have to buy an annuity in order to receive an income from their retirement savings. While purchasing an annuity guarantees you an income for life, it also means sacrificing some of your funds from the offset and leaves nothing for you to pass on to family. With this in mind, a recent article on The Telegraph offered some viable alternatives.

Cash

It may not pay much right now, but cash can offer the security of capital preservation - just bear in mind that the deposit guarantee scheme has an £85,000 limit. You can only hold self-managed pensions in specific types of savings account, the best ones currently being five-year bonds from the Bank of Baroda and State Bank of India, which offer a 2.9% rate. What´s more, you´ll need a a Sipp (self-managed pension) to gain unlimited access to cash accounts.

Bond funds

Many people view bonds as a reliable source of steady income, but if you are concerned then ‘strategic´ bond funds offer the most flexibility in the face of changing markets. Financial advisers are currently recommending Jupiter Strategic Bond (yielding 5%), Henderson Strategic Bond (4.9%) and M&G Optimal Income (2.7%).

Equity Income funds

There is little scope for capital growth with most bond funds; but investing in share-based funds can boost both income and capital in the long run. However, investors also have to prepare themselves for dips and falls. Some favoured options among experts include JO Hambro Capital Management UK Equity Income (4.1%), Threadneedle UK Equity Income (3.7%), Artemis Income (3.4%) and Woodford Equity Income (currently with a target yield of 3.4%).

Multi-asset funds

These mix a blend of bond funds and equity income funds, offering the chance to grow income and capital while lessening the impact of an adapting market. You can either build your own multi-asset portfolio, or purchase a single fund holding a combination of assets. The JP Morgan Multi-Asset Income (3.6%) is an example of an ordinary fund, while F&C MM Navigator Distribution (4.5%) represents a “multi-manager” approach.

Investment Trusts

For an income with the chance of capital growth, many retired savers turn to a generalist investment trust. For example, City of London yields 3.6% and has increased its dividened every year, for the past 48 years. Before purchasing an investment trust, check for any ‘premium,´ as these funds are traded as companies on the stock market.

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