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Retirement Finance

55 plus? What Are Your Pension Options

In April 2015 the rules governing Pension was relaxed substantially to allow more flexibility for pension pot holders. i.e people who had built up a pension pot through a money purchase or defined contributions scheme.

Prior to the changes investors in pension plans were restricted as to when they could retire with your pension., typically age sixty or over. The pension could only be taken as an annuity plus lump sum or an annuity only. Now their are much more flexible options:-

Leave It To Grow

You don’t have to take your pension, you can simply leave the pot to grow in it’s tax free environment until you want/ need it. No action needed.

Dip In

Rather than have a formal arrangement you can simply dip into the pot and take money as required. The first 24% of money you take in a tax year is tax free,the remainder is taxed as income, so if you have the latitude in your tax arrangements e.g. your taxable income is less than your allowance you can also take the difference tax free.

There are tax issues to consider, so if you have complex tax affairs it might be worth getting some professional advice.

Annuities

This what you used to have to do with at least a portion of your pension. An annuity is a guaranteed income from an investment for life, there is no capital value on death. The income varies depending on the plan provider and your heath (for a change you get more as a smoker). The flexibility here is that you can take the benefit earlier.

An annuity is most often purchase in conjunction with taking the tax free lump sum as cash. There are numerous options that effect the payment, whether fixed or increasing, dependents benefits etc.

Pension Draw Down

This approach has a lot in common with the previous option. The investor usually take 25% tax free cash. The difference is that instead of buying an annuity the balance of the pot buys an investment to provide an income. This income isn’t guaranteed and may vary. However it is more flexible than an annuity and may have residual value when you die, so estate might get something.

Take it all

This is an attractive option to many people until they realise the tax implications. You can take 25% tax fee, the remaining three quarters are subject to tax, so you lose a big chunk of your pot. Longterm you may run out of money etc. This is a a realistic option if are terminally ill or have a strong need for an influx of cash.

Summary

The pensions market has been relaxed so people can decide the best way to deal with their money at retirement. This is just a flavour of your options. Many people in retirement take advantage of the growth in property values to supplement their income through equity release.

Interesting links:-

https://www.pensionwise.gov.uk/

https://www.moneyadviceservice.org.uk/en/categories/pensions-and-retirement