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Unit Linked
Your income in retirement will be linked directly to the value of an underlying fund of investments. Generally, you can choose the types of fund, for example:
- Medium risk managed fund where the fund manager selects a broad range of different shares and other investments - spreading your money widely reduces risk
- Higher risk fund where a fund manager selects shares and other investments in a particular country - Japan, say - or sector, such as smaller companies or technology companies. Because your money is less widely spread, the risk is higher
- Tracker fund (usually medium risk) which tracks the performance of a particular stock market index like the FTSE-100. Usually, these have lower charges than managed funds
The more risky the underlying fund you choose, the more your retirement income may vary - both up and down.
Your starting income is based on an assumed growth rate (similar to the assumed bonus rate). If the fund grows at the assumed rate, your income stays the same. If growth exceeds the assumed growth rate, your income increases. If growth is less than the assumed rate, your income falls. A few unit-linked annuities let you invest in a 'protected fund' which limits the fall in your income.
Most unit-linked annuities do not guarantee any minimum income. Even if your income is based on an assumed growth rate of 0%, your income could still fall if the underlying investment fund falls.
You should not consider a unit-linked annuity unless you can cope with an income that can swing widely and may fall. You would need a large pension fund or other sources of income (or both) to fall back on. Unit-linked annuities are higher risk than either conventional or with-profits annuities.
If you have an old or frozen pension plan then you should have it reviewed by the qualified experts.
You may be able to:
- Increase the value of your pension
- Unlock your pension
- Consolidate your plans
- Save £thousands in pension charges
- Access better performing funds
- Release tax free cash from your plan
- Receive an immediate income
