There’s a lot to understand when it comes to retirement and because you’re approaching your selected retirement date, you’re soon going to have to choose what’s best for you. Life feels better when you have a plan and the more you understand your options, the better prepared you could be. And that’s where we can help – Retirement Professionals is a great place to start.
We’ve explained your current options, and the options you’ll have from April 2015, on this page.
WHAT ARE YOUR CURRENT OPTIONS?
There are new rules from 6 April 2015 which will give you greater freedom over the way you can take income from your pension savings, so let’s remind you of your current options.
If you don’t need to take your pension savings yet, you can leave it for now and keep it invested, then make a decision when you’re ready. You need to make sure that deferring your pension doesn’t mean that you’re losing any valuable guarantees. If you want to take your pension savings before the new rules apply on 6 April 2015, and you’re aged 55 or over, you can normally take up to 25% as a tax free lump sum and the rest must be used to provide a retirement income which is taxable.
A guaranteed income for life
Currently, the most common way to do this is use your pension savings to buy an annuity, which gives you a regular income for life. You can buy an annuity from your pension provider, but you should shop around other insurance companies to make sure you get the best deal available. Not only will different annuity providers offer different annuity rates, they may also offer different types of annuities such as an annuity which takes into account your health and lifestyle (Enhanced Annuity). If you shop around, you’re more likely to find an annuity that best suits your circumstances. Buying an annuity is usually a permanent decision and your choice will affect your income for the rest of your life. Compare annuity rates by using our Annuity Calculator.
You could also consider Income Drawdown which can provide a more flexible income. This allows you to keep your pension invested but take a regular income, subject to government limits. From April 2015, these limits will be removed – you can take all of your pension pot in a lump sum, subject to tax at your marginal rate. Visit our Drawdown page for further information or submit your details to speak with an adviser regarding Drawdown changes by clicking here.
Take it all as cash
Currently, if you’re aged 60 or more you may be able to take all of your pension savings as a cash lump sum if:
* the total value of all your pension arrangements with different companies (excluding your state pension) isn’t more than £30,000. You may be able to take all of your pension savings from the different arrangements as a lump sum. This is sometimes called Trivial Commutation.
* you have any individual pension pots that are valued at less than £10,000 (whether or not you have any other pension funds with different companies). These are called Small Pension Pots. You can do this with up to three individual pension plans that are valued up to £10,000 each. If you have occupational pension schemes the number of times you can do this is unlimited.
For either of these options 25% of this will be tax free and the remainder will be taxed.
WHAT ARE YOUR OPTIONS FROM 6 APRIL 2015?
From the 6 April 2015, you’ll have greater freedom over the way you take income from your pension savings. These changes will allow you to choose one or more of these options:
A tax free cash lump sum and a guaranteed income for life – an annuity.
Up to 25% of your pension savings can be taken as a tax free cash lump sum, you’ll also receive an income for life (your annuity). This income will be taxed at your marginal rate. Compare annuity rates by using our Annuity Calculator.
Take it all as cash.
In addition to the 25% tax free cash lump sum, you can take your remaining pension savings as cash, although you may have to pay tax on this.
Flexible access to your pension savings.
You can take part of your total pension savings whenever you like and leave the rest invested. Again, you may have to pay tax on the amount you choose to take.
Leave it for now.
If you don’t need to take your pension savings yet, you can leave it for now, keep it invested and make a decision when you’re ready to retire, but make sure if you do this you won’t lose any valuable guarantees.
Whatever option you choose, the tax you need to pay will depend on your personal circumstances. Tax rules can change.
The Government wants to ensure that from 6 April 2015 you can have guaranteed guidance to help you understand your options. You’ll be able to get this free service face to face, over the phone or online and it will come from a range of organisations such as The Pensions Advisory Service (TPAS) or the Money Advice Service (MAS).