There has never been a better time to be thinking about your pension. The freedoms introduced in 2015 have afforded savers more flexibility than ever, so it’s important to understand the options available to you to ensure your savings work as hard for you as you have for them.

Find out more about these changes and how James Hay Partnership can help you navigate the options available by watching our Pension Flexibility video.

 

 

Your options

What you do with your pension pot is up to you but the significance of your decisions should not be underestimated. That’s why we suggest you seek advice from a suitably qualified financial adviser.

Once you reach the minimum pension age, normally 55, you’ll be able to

  • leave your pension fund invested;
  • enter drawdown, thereby taking some of your money whilst leaving the rest where it is;
  • withdraw cash in one or a number of lump sums;
  • purchase an annuity;
  • go with a combination of all of the above;
  • or take your entire pension pot in one go.

When taking an income from your pension in any way, the first 25% will normally be tax free with the remainder being taxed as income. Pension taxation can be complicated, so we recommend that you seek professional advice for clarification of how it affects you and your particular set of circumstances.

 

Leave your pension fund invested

Leave your pension fund invested

There is no need to rush into a decision even though the changes to regulation have made it easier to access your pension. By leaving your fund where it is, you’ll give your savings a chance to grow largely free of tax.

 

 

 

Enter flexi-access drawdown

Enter drawdown

Flexi-access drawdown allows you to take any amount to provide an income that suits your requirements, at monthly, quarterly, half-yearly or annual intervals and can be varied on your instruction. Whilst in drawdown, your pension funds remain invested and can continue to grow largely tax free.  

 

 

Take an Uncrystallised Funds Pension Lump Sum

Take an Uncrystallised Funds Pension Lump Sum

In addition to drawdown, you can take lump payments from your pension called Uncrystallised Funds Pension Lump Sums. As the name suggests, this option allows you to take any number of lump sums (assuming you have sufficient funds built up) without crystallising the rest of your funds. You could even choose to take your whole pot in one go. It’s worth noting though that any growth of your pot once it’s left the pension environment will be subject to additional tax.

 

Purchase an annuity

Purchase an annuity

By passing your pension pot to an annuity provider, you’ll be able to guarantee a set income for the rest of your life. Annuities are generally fixed so you won’t be able to vary what you receive to suit your circumstances once you’ve made the agreement.

James Hay Partnership is not an annuity provider. Should you decide this is the best option for you, you’ll need to find a suitable provider on the open market.

 

A combination of the above options

You could opt for a combination of the above should it suit your risk appetite, tax, growth and income requirements.

Don’t get stung! Fraudsters often target people who have taken money out of their pension. Read our factsheet ‘Scam proof your savings’ to find out what you can do to protect yourself from pension fraud.

 

For further detail on how to access your pension funds click here.

Should you choose to take an income through drawdown you need to bear in mind the sustainability of your chosen income method. Changes in circumstances, taxation, the performance of your underlying investments and the length of time that you live in retirement will all have an effect on the income available from your pension.

James Hay Partnership does not provide financial advice. We do however recommend that before taking pension benefits you seek advice from an authorised financial adviser.

Also available is Pension Wise; a free and impartial Government service that offers people with defined contribution pensions who are approaching retirement free, impartial guidance about their retirement choices. You can receive Pension Wise guidance online, over the phone or face to face. To use Pension Wise, please visit the Pension Wise website at www.pensionwise.gov.uk or call either 0800 138 3944 or 0300 330 1003 (from outside the UK +44 20 3733 3495), if you wish to use this service.

The above information is based on our interpretation of current law and HMRC practice which may be subject to change in the future. James Hay Partnership does not provide financial advice. If you require advice you should speak to an authorised financial adviser.

The Money Advice Service has detailed information to explain your options at retirement.