Stan Russell, senior business development manager at Prudential, says the key is to invest a pension pot during retirement so the returns match the critical yield, as best as possible.

Making sound choices

Finding the right answers for a client’s retirement income is not a straightforward task. Much of it will depend on the amount held in the pension pot, of course. If it is a fairly low value, an annuity – whether conventional or enhanced – is the most likely choice. But if it is worth £100,000 or more, phased retirement and income drawdown options become realistic considerations depending on circumstances.

Mr Quinton at Bucks Consultants says someone who has a pessimistic view and believes markets will only worsen over time, causing annuity rates to drop even lower in the future, is likely to want a lifetime annuity.

However, he says, all of the indicators suggest circumstances are more likely to improve and clients could achieve more by using a more flexible option. “It’s very much down to the individual’s attitude to risk. In five years’ time I doubt we’ll be on a 0.5 per cent Bank of England base rate and I doubt the markets will be the way they are,” he says, adding, “If it were me, then a fixed-term product would be good for the income requirement.”

Ultimately, the best solution is one that comes through sound financial advice. The most important thing is to know the client’s objectives and to help guide them to the best outcome.