The introduction of ‘pensions freedom’ in 2016 provided pension holders with greater choice over how to draw pension, in particular from pensions which build a ‘pension pot’ for retirement. 

The good news is that how you draw your pension can now be tailored more accurately to your personal needs and circumstances.  From age 55, you can access your pension pot, either as a lump sum or as income. Equally, you can stop, start, and even continue paying into your pension within reduced limits to benefit from additional tax relief. The option to draw pension, whilst still working, also allows you to step gradually into retirement – you may choose to carry on working into later life but take your foot off the peddle slightly. You may want to try self-employment but need a financial cushion. Perhaps mix charitable and paid employment.  Or combine reduced hours with more family time. The opportunities are endless.  

Added to this, changes in employment legislation in 2011 has effectively stopped age discrimination in the workplace and allows you the freedom to continue working into later years. After-all, many people may enjoy working and the financial benefits it brings. 

And why not? According to the Office of National Statistics, average life expectancy for both men and women is now in the high 80’s. We’re living longer and generally healthier lives. 

But equally, taking pension in a more flexible way does risk your pension savings being used up earlier than you planned. There may also be additional investment risk, depending on where you invest your pension and hidden ‘tax traps’. 

The added complication is that, although the Government has introduced the legislation to allow pension holders this freedom, in reality most ‘older style’ personal pensions are not geared up to deliver this freedom.

So, you need to seek professional financial advice on how and when to draw your pension, and how to design your retirement income around your short, medium and long term needs.  

Choosing how to draw your pension may be one of the most important decisions you’ll ever make. Yes, there are more choices, but with choice comes more responsibility.