FOLLOWING on from a prior article regarding the care and coddling of your pension, an vital asset in planning for your financial future, today we will focus on the pension distribution phase for those ready-to-retire individuals.First, a bit of background. The Bermuda National Pension Scheme 1998, implemented at the beginning of the year 2000, was very controversial at its inception. Initially, the Scheme, although well accepted by some, was disparaged by other employers who feared the worst. That is, the cost of the contributions would be detrimental to their bottom line, or in worst case, bankrupt them.For the employee, the Pension Scheme has become over the last decade a valuable component of retirement planning.Employees who started with this mandated-by-law, national, defined contribution plan have been accumulating a portion of their earnings for more than 11 years, provided that they have been employed throughout that time frame.The percentage contribution at five percent for both employer and employee of gross salary since 2004 is significant savings for everyone. It is the only savings for others for the important accumulation-of-assets phase in their lives, generally from aged 25 to 55 years of age.Pension participants may have also seen decent portfolio appreciation in their individual pension plans, depending upon their asset allocation choices. Employee benefits are still though very much dependent upon the sustainability and profitability of the employer (company), and will be in jeopardy if the company is struggling to survive.In the United States, during this long recession, employers across the board have discounted employee benefits or slashed them completely from subsistence-to-survive operating budgets.Bermudian employees are still fortunate in this respect as employers are expected to continue to contribute to each employee's vested pension plan.Retirement looming on the horizon should generate a complete review of all pension, savings, and investment accounts available to the individual. Each asset needs an assessment. Should you continue with the current investments, or look toward restructuring them to generate more retirement income, and less equity volatility?How will you handle your pension accumulation? There is more than one approved form of pension distribution, but we shall focus primarily on the plain vanilla annuity. This product choice causes soon-to-be retirees and pensioners the greatest confusion.Annuities are offered in several formats, and a number of payment years, or for life. Since no one can predict the future with any accuracy, choosing the right annuity for your personal situation can be a real challenge.An annuity, in plain language, is a method of distributing an equal payment derived from a lump sum of cash to an individual (the annuitant) over a certain time period. Why would anyone need a annuity? Simple enough, you think. It appears to be just the same as taking, say $1,200 from your savings account every month. Why shouldn't I just do that? Well, of course, you can!But then, there are those occasions - more often than you would like because everyone knows you are retiring. The old car bites the dust, or you've got to renovate the only bathroom, or your only granddaughter needs financial assistance with university fees, or your eldest child needs help with a home downpayment and there you go, that savings account balance just dropped 50 percent.An annuity is a legally binding contract where you, the buyer, work with an annuity provider, generally an insurance company, to provide an income stream from that savings account over the remainder of your life, or for a certain time-frame.You pass the obligation (and your lump sum of cash) to the insurance company to guarantee this payment in exchange for the secure consistency of a paycheque-type payment every month. You no longer have the burden of managing this investment on your own. You no longer have access to that lump sum of cash, and neither do your relatives, children, and friends.The length of time for the annuity to payout, the interest rate at the time of the contract, the projected future cash flows of the annuitant, the estate planning to provide for beneficiaries, with say a partial annuity to a spouse, and the amount of the lump sum saved, all play a part in constructing the annuity.Annuities have been utilised by parents with disabled children to provide continuing support throughout the child's life, or for managing care in cases such as long-term Alzheimer's patients, who possess neither capacity nor funding to care for themselves.I have never been a big fan of annuities, personally, but they do have their place in retirement planning. My perception is quite jaded due to the numbers of US cases where the sale of annuities was neither warranted, nor justified. The annuity salespeople earn substantial commissions then, around seven percent, with such questionable practices. Fortunately, pension annuity products in Bermuda are regulated and subject to compliance and suitability best practices.Next: Stay tuned to understand annuities offered in Bermuda, drawdown accounts explained, what should you chose for your situation, estate planning for your pension, cross border caution for dual citizens and multinationals with taxation, reporting, and portability of foreign pension schemes, financial stability and strength of the annuity provider, assessing risk of loss and costs to implement.Excellent detailed investment articles on annuities can be found at http://www.investopedia.com/articles/retirement/05/063005.aspMartha Myron, JP CPA CFP(US) TEP, is an international Certified Financial Planner practitioner in private wealth management. She specialises in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with United States and multi-national connections, and US citizens living and working abroad. She is a Masters in Law candidate in International Tax and Financial Planning and the American Citizens Abroad Country Contact for Bermuda. www.americansabroad.org. For more information, contact mmyron[AT]patterson-partners.com or 296-3528 at Patterson Partners Ltd.