We can advise on all types of pensions, planning for your retirement and the options you have when taking your pension. These options have changed over recent years and it is even more important that the choices you make are well informed.
Generally, the options you have when thinking about retiring are:
- Uncrystallised funds Pension lump sum (UFPLS)
- Provider annuity
- Flexible annuity
- Open market Annuity
- Flexible Drawdown
Annuity – take an income
You can buy a regular retirement income, usually for life (called an annuity) with your pension savings when you retire. This can often be from the provider you hold your pension with although by shopping around you can often get a greater income for the same pension fund. This is known as the open market option.
Some flexible annuities are also available that will allow you to choose your income each year (within certain limits). This might be good if you want a guaranteed income but with some flexibility.
An annuity pays you a guaranteed amount monthly, quarterly, half-yearly or yearly. Once you have bought an annuity though, your money is tied up for a set amount of time, often for the rest of your life.
There are different types of annuity available. For example, annuity payments that increase in line with inflation or at a set level over time; annuities that pay an income to a loved one after your death and annuities that pay out for a set number of years, even if you die during that time. Please note however that by buying an annuity you no longer have any access to the pension fund.
Take a variable income – Drawdown
This option allows you to take a variable income directly from your pension pot and leave the rest of it invested.
Up to 25% of your pension pot can be taken as a tax-free lump sum. You can take any income or lump sums as you like. You pay tax on the income you receive at your marginal tax rate.
Your pension pot remains invested so the amount of income available to you may rise or fall depending on how the funds your pension savings are invested in perform. Taking lump sums and income directly from your pension pot will reduce the amount you have available in the future. For this reason you should keep the funds your pension savings are invested in under close review so you can make sure they meet your needs for the future.
UFPLS: Cash in one or a series of lump sums
You can cash in your pension or take a series of lump sums. This is known as an uncrystallised funds pension lump sum.
You can still take up to 25% of your savings tax-free and the remainder will be added to your income for the relevant tax year and then taxed at your highest income tax rate.
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