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How can I take money out of my pension

If you are 55 or over, you can start accessing your pensions now – and we’re here to help.

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Since April 2015, you have greater flexibility over how you take money from your pension - any time from age 55.

Please note if you are planning to take money out of your pension in the near future, you are entitled to free, impartial guidance from Pension Wise. Visit 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.

From age 55, you can:


Opportunities

1: Flexible access: You can easily vary the amount of money and when you take it to meet your current and future needs.

2: Extended growth potential: You can leave your pension fund invested until you need it, in order to maximise its growth potential.

3: Tax-planning: You can use flexi-access drawdown A pension income drawdown arrangement where there are no limits on how much can be taken out of a pension fund or when. All income drawdown arrangements set up from 6 April 2015 onwards are offered on a flexi-access basis. Once a pension fund is moved into flexi-access drawdown, an investor can only make new pension contributions (including tax relief) of up to £4,000 a year. See also Capped drawdown. to plan for your changing tax status. For example you may choose to take your tax-free lump sum element while you are still working and subject to a high level of tax. You could then take the taxable income when you stop working and may fall into a lower tax bracket.

4: Estate planning: On death, any money left in your fund will not form part of your estate for tax inheritance tax purposes. If you die before age 75, pension funds are passed on tax-free to your beneficiaries. Should you die after 75, you can also pass your pension on to your beneficiaries but they will be taxed as income. This can make pensions a tax-efficient way to pass on assets.


But there are also risks

These freedom also presents some major risks:


RISK 1:
Losing pension guarantees: Some individuals are choosing to transfer their employer’s defined benefit (‘final salary’) pension schemes A pension plan where the income received in retirement is guaranteed, based on an individual’s salary and number of years of service. For example, some DB pensions may pay 1/60th of salary for each year of service so after 30 years, a worker would be entitled to a pension that is 30/60ths (or half) of their salary before retirement. Many companies have replaced their DB pension schemes with defined contribution plans because the cost of providing the promised pension is considered unsustainable. Also known as a final-salary pension scheme. into personal pensions to take advantage of the new freedoms – but are losing valuable pension guarantees in the process.

RISK 2: Becoming the victim of a scam: Individuals looking to access their pension fund are often being targeted by fraudsters seeking to part them from their money by promising unrealistic returns or promising to help them withdraw their pension. Learn more here.

RISK 3: Running out of income: Withdrawing large lump sums or very high levels of income can deplete the pension fund so there isn’t enough to provide a sustainable income throughout retirement.

RISK 4: Paying too much tax: Whilst 25% of your pension is normally available tax-free any further money you take out, will always be subject to income tax. This may mean if you take out a large amount in a single tax year, you could end up in a higher rate tax bracket and with a large tax bill.

RISK 5: Falling fund values: Keeping a pension fund invested in the stock market can see its value fluctuate – perhaps at a time when you may not have enough time to recover from market falls. If your pension fund is small, you may find it hard to diversify investments sufficiently to spread risk.

RISK 6: Uncertain income levels: Unlike an annuity, flexi-access drawdown offers no guarantees about the level of income available or how long it can be paid for.


Please note: Flexibly accessing your pension – either through UFPLS or flexi-access drawdown – will limit how much you can pay in to any pension scheme to £4,000 a year.



Getting advice and guidance

The choices you make for your pension fund can determine the level of income you receive for the rest of your life. For this reason, we strongly encourage you to seek regulated financial advice and guidance to decide the best course of action to take.

James Hay cannot provide advice. If you would like to speak to a regulated financial adviser but do not have one, please visit www.unbiased.co.uk to find a regulated adviser in your area.

If you are planning to take money out of your pension in the near future, you are also entitled to free, impartial guidance from Pension Wise. You can receive Pension Wise guidance online, over the phone or face to face. Visit 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.

Please note: You can only take advantage of the pension freedoms from age 55. Anyone thinking of withdrawing lump sums from their pension fund should consider the impact this will have on future retirement income.

Factsheet
Read more about your options for accessing your pension here.

The Money Advice Service has produced a brochure to explain your options at retirement.

 

> What could I get in retirement

> Making the most of pension freedom

> Avoiding pension scams

> What you can do at 55 and how we can help

> Consolidating your pensions with James Hay

> How to take money from your pensions with James Hay

> Income-planning with the Modular iPlan