Since April 2015, the choices facing those looking to access their pension savings have widened. Pension flexibility rules allow unlimited access to your pension once you have reached the minimum pension age (currently age 55).

Most personal pension schemes will provide tax-free lump sum equivalent to 25% of the fund. Beyond that, any withdrawals or income is taxed in the same way as any other income.

In practice, accessing pension savings usually takes one of two routes:

  • Flexible Drawdown: this involves taking withdrawals directly from your fund, leaving the residual fund to continue to be invested and potentially benefit from tax advantaged growth. You can determine the amount and frequency of withdrawals to suit your specific circumstances. This type of arrangement may offer no guaranteed income and may erode the fund over time, although newer innovative arrangements are offering some guarantees. It is a complicated marketplace and we strongly recommend you seek advice before signing up to a flexible drawdown arrangement.
  • Annuities: an annuity is a plan purchased with a lump sum that will provide a guaranteed income for the agreed term of the plan. This could be for the rest of your life – using a Lifetime Annuity – or for a specific period of time, using a Fixed Term Annuity. Annuities can provide additional benefits such as a spouse’s pension and/or inflation-proofing. Some annuity providers will offer flexible annuity plans where income levels can be adapted to your needs during the term of the annuity.

The pension company who hold your pension savings before retirement may contact you with a proposed annuity rate, but it is important to get advice at this point as other providers may offer a better rate. In addition, if you have health or lifestyle factors that the insurance companies involve might consider life-shortening, you are likely to be offered a more attractive annuity rate.

If you have a DEFINED BENEFIT SCHEME (also known as a final salary scheme) such as is often found in the public sector or large companies, your pension benefits are calculated according to your length of service and salary. See our Defined Benefits Scheme page for your retirement income options.

Choosing a retirement income option is a big decision, and is often an irrevocable one. We strongly recommend that you get good independent advice before making up your mind. Contact us to arrange a free initial consultation to discuss your options.

The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The tax treatment of investments depends on individual circumstances and is subject to change.

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