As a result of changes to pension rules introduced in 2015, we can now have greater access to our pensions than ever before. If you’re nearing retirement but you don’t know how to access the pensions you’ve built up over many years, you may have more options than you think.
Whilst this may be good to know, the increased level of choice can often lead to confusion and, making the wrong decision now, could potentially lead to problems further down the line.
If you have a defined contribution pension and you are aged 55 or over you have the freedom to choose how you take your pension and you can usually take 25% of your pension as tax-free cash whatever option you choose.
So What Are Your Options?
Receive a regular income for life with an annuity – You can use your pension to provide a regular income for life through the purchase of an annuity. This could be enhanced if you are suffering ill health.
Receive a flexible income with a ‘flexi-access drawdown plan’ - Drawdown lets you have access to your pot as you need it. You take flexible cash amounts from your pension pot, while the rest stays invested - but like any investment, the value could go down as well as up, and you may not get back what you put in. Any money you have left in the fund can be passed on when you die.
Leave it where it is - If you don’t need the money just yet, you could leave it invested for now. As long as your money stays in your pension pot, you won’t pay tax on it, and you’ll get tax-relief on contributions you make into your plan.
To take 100% of your pension pot – You can take everything in one go. 25% of the funds will be tax free, the remaining amount taxed as income at your marginal rate of income tax. You should have other sources of income to support you through your retirement if you use this option.
Combination of options – You can use a mixture of each option but you will need to ensure you are not losing out on benefits or guarantees on your existing schemes by combining these.
If you're looking for help with your pension or retirement options, I can help you decide what option is right for you.
To arrange an appointment, please contact Marcus Dodds on 07584 294529 or email marcus.dodds@armstrongwatson.co.uk.
