How can I take my pension savings?

In April 2015 the government brought in changes that mean you can now access your pension in more ways than ever before.

The key thing to know is that from the age of 55, if you have a defined contribution pension, you now have more freedom over how you take your pension. You also have more choice about how you take the tax-free cash allowable from your fund.

There are several ways you can take your pension.

Read our overview of the changes, to help get you started.

Flexible access to your pension savings

There are several ways you can take your pension. These can also be used in combination, and you can choose different options if you have more than one pension. You may also be able to delay taking your pension until a later date.

1. Take your money as cash - all in one go, or as a series of lump sums
The new pension freedoms allow you to take your whole fund as one cash lump sum, or smaller lump sums, as you need them, whilst the rest remains in your pension fund. Each payment will be 25% tax-free and the remainder will be added to your income for the year and taxed accordingly. This may result in you paying a higher rate of tax and it's also important to make sure you have enough money to last throughout your retirement.

You can leave any remaining funds to the person of your choice when you die.

2. Get a flexible income with a flexi-access drawdown plan
Flexi-access drawdown (previously known as income drawdown) has been brought in to allow you to take any number of income payments from your drawdown fund, while the rest stays invested. You can take as much money as you want and as often as you like, but you will be charged every time you do so. Your provider will take off the appropriate amount of income tax before sending you the payment.

Like the cash option it is important to consider whether you can fund your retirement for the rest of your life. You should think about how much you take out every year and how long you want your money to last for. Like any investment, the value could go down as well as up and there's a chance that you may not get back what you put in.

Any money you have left in the fund can be passed on when you die. 

3. Get a secure, regular income for life with an annuity
The other option available to you, if you want to use your pension to provide an income, is to buy an annuity with your fund. An annuity will provide you with a guaranteed income for the rest of your life, regardless of how long you live. There are different types of annuity to choose from, with income options to suit your needs, perhaps those of your partner when you die - or maybe an increased income if you or your partner have certain health conditions.

Once you've chosen your annuity, you can't usually change your mind, so it's important to shop around for the best income based on your circumstances. You can get advice on how to do this from the Money Advice Service.

4. A combination of options
It may be possible to mix and match what you do with your pension pot at different points in your retirement. You can take your pension pot as cash along with an income to provide some flexibility and security. Within the income option, you can either turn your pot into an annuity or flexi-access drawdown or choose a combination of the two. However you combine options, you’ll be able to take 25% of your money tax-free. 

Before combining any options, take time to think about the benefits and considerations of each option on its own. The value of any money that remains invested can go down as well as up and you may not get back the amount you put in. If you take the full 25% tax-free cash allowable as a lump sum, you’ll need to turn the rest of your pot into an income or take it as cash, subject to tax. 

5. Leave it where it is
You don’t have to do anything with your pension savings when you reach age 55. If you don’t need the money just yet, you could leave it invested for now. As long as your money stays in your pension pot you won’t pay tax on it and you’ll get tax-relief on contributions you make into your plan. However, there’s no guarantee you’ll get more, or the same level of cash and/or income from your pensions savings if you take it at a later date and your fund value can go down as well as up, while it remains invested, and so you may not get back what you put in.

Access to free pension guidance

In addition to the support we offer, we recommend that, from age 50, you seek impartial guidance from Pension Wise, the free service from the government that is available on the internet, over the phone or face to face. 

We are not recommending a particular retirement option, or course of action, over another. And whatever you decide to do with your pension, you don't have to stay with us. You should shop around and, depending on the choices you make, you may be able to get a higher income elsewhere. 

As your pension provider, we’re here to give you all the information you need to help you make suitable, informed decisions. But remember, you can also find out more about your retirement options from other sources, including;

Pension wise
The Pensions Advisory Service
HM Revenue & Customs
A financial adviser
Your employer

If you are a member of an occupational pension scheme, the options available to you may vary, so please contact your scheme provider.  If you have a pension with guaranteed benefits where the value is £30,000 or more, legislation requires you to take financial advice when looking to convert into a flexible option, such as taking the pension pot as cash or transferring to a flexible income option. In addition, if you want to transfer out of a defined benefit scheme you are also required to take financial advice.

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