Pensions: Know Your Options
Updated: Aug 13, 2019
Sweeping new changes introduced in April 2015 have expanded your range of choices on retirement. Under these reforms, you have a far greater amount of freedom: you can choose how and when you want to access your pension pot to suit your own personal circumstances.
But before doing this, there are many questions to consider that may include: How old are you and what is your state of health? Perhaps you want to stop working straightaway, go part-time, or keep working as before. Do you have a spouse and/or dependants? What are your goals, aspirations and attitude to risk? If you have a strategy in mind, what are the tax implications? When you have considered this, you can review the choices available:
Purchase an annuity – this will provide a steady, predictable income stream, and there are various options, including protection against inflation. However, annuity rates are low and therefore annuities do not necessarily offer good value.
Flexi-access drawdown – you can take up to 25% of your pension pot tax-free, and reinvest the balance to generate a regular, taxable income. However, the resulting income is not guaranteed and you could run out of money.
Withdraw your entire pot as cash in a single transaction – this option is attractive if you wish to access your pension pot quickly, whether to spend or reinvest. However, 25% of each withdrawal is tax-free and the remaining 75% will incur income tax, so you could incur a substantial tax charge.
Take lump sums when you choose – this spreads your 25% tax-free allowance. However, your pension provider might restrict the number of withdrawals you can make in a year, and you could incur a tax bill if your withdrawals push you into a higher income-tax bracket.
Leave your pension pot untouched until a later date - allowing it to continue to grow.
You can of course, mix and match these various options, depending on your own specific requirements.
How and when you choose to access your pension pot is a serious decision that will affect the rest of your life.
The value of investments and the income from pensions may fall as well as rise and you may not get back the full amount you invested.
Contact us if you would like to arrange a Pension Planning or Pension Review Session.
Content courtesy of Adviser Hub.