You can delay taking money from your pension pot to allow you to consider your options. Reaching age 55, or the age you agreed with your pension provider to retire, is not a deadline to act. Delaying taking your money may give your pension pot a chance to grow, but it could go down in value too.
Also, if your pension comes with some form of guarantee you should think once, twice and three times before taking your pension. Make sure you get some trustworthy retirement advice in helping you make your final decision. We can help.
You can take the whole amount as a single lump sum, but beware! Although a quarter of your pension pot can usually be taken tax-free, the rest will be taxed. This may affect the amount of tax you pay on any other income you receive.
Also, although you may receive a lot of cash in one go, you’ll need to think carefully about where your income will come from for the rest of your retirement. Don’t necessarily rely on the State to give you a comfortable retirement.
You could opt for Flexi-Access Drawdown. Then you can leave your money in your pension pot and take an income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. A quarter of your pension pot can usually be taken tax-free, and any other withdrawals will be taxed whether you take them as income or as cash lump sums. You may need to move into a new pension plan to do this. You do not need to take an income.
Some pension providers can automatically move your pension into Flexi-Access Drawdown. For others you may need to switch to another pension provider.
If you opt for Flexi-Access Drawdown, you can leave your money in your pension pot and take lump sums from it as and when you need, until your money runs out or you choose another option. You can decide when and how much to take out. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. Each time you take a lump sum, normally a quarter of it is tax-free and the rest will be taxed. You may need to move into a new pension plan to do this.
You can also choose to take your pension using a combination of some or all of the options over time or over your total pot. If you have more than one pot, you can choose different options for each pot.
Some pension providers can offer you an option that combines a guaranteed income for life with a flexible income.
A lifelong, regular income (also known as an annuity) provides you with a guarantee that the income will last as long as you live. Annuity rates are not that great right now and once you’ve bought one, you won’t receive any further investment growth. But they’re a good option if all you want is a guaranteed income and the older you are, the higher the income.
A quarter of your pension pot can usually still be taken tax-free, and any other payments will be taxed. If you’re in poor health, you may receive an enhanced income.
- The pension payable and any tax-free cash sum will depend on investment returns achieved, annuity rates and interest rates at the time, charges and the effect of taxation and legislation, and they may be higher or lower than the existing benefits.
- If you are not in good health at the time of a transfer and should die within the two years following the transfer, it is possible that some or all of the death benefits from this plan could be included in your estate for Inheritance tax purposes.
- You should understand that you would lose access to the capital invested in your pension until you decide to draw the benefits. Under current HM Revenue & Customs’ practice, it is not normally possible to access the fund(s) prior to the age of 55 (expected to increase to age 57 from 2028 with further increases as the state pension age goes up).
- Any employer contribution to your plan is dependent upon the continued solvency of your employer.
- If your employment status changes, it is important that your retirement planning is reviewed.
- Depending how it is taken, your pension income may also depend on interest and annuity rates at the time you retire.
If you are keen to know more – why not request a call back for a no obligation consultation.
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