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Pensions: Know Your Options

Updated: Jun 16, 2022

Updated 16/6/22

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, rates are low and therefore annuities will not be right for everyone.

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 continued exposure to potential investment growth. 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.

Contact us if you would like to arrange a Pension Planning or Pension Review Session.

Content courtesy of Adviser-Hub, checked for accuracy by Culverhouse Financial Planning Ltd.

The article outlines just some of the things you could consider in relation to pension planning. It does not represent financial advice. If you would like personalised financial advice please contact a financial adviser.

Remember that the value of investments can fall as well as rise and past performance is not a guide to future performance.

Taxation is based on current legislation which is subject to change and will also depend on the individual circumstances of each investor.

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