You’ve sown the seeds, tended to your investment and watched your pension grow, soon it’ll be time to reap the rewards of all that hard work. But have you been so busy paying in that you’ve given little thought as to what you’ll do with it?
Well, depending on your circumstances there are a few options.
First, it’s worth remembering that you’re entitled to withdraw 25% of your pension pot tax free.
The remaining 75% can be used to set up a guaranteed income, a flexible income or taken as cash lump sums. This will be subject to income tax.
How much will depend on how you decide to take your pot and what your tax situation is at the time. It’s important to consider what you’d like to do with the remainder of your pension in the short term, when you’ve just retired and plan so that you have enough to enjoy your later years.
If you’re ready to take your pension now you have four options:
Purchase an annuity, draw a flexible income, take cash lump sums, or leave your money to grow.
If you’re looking for security then taking out an annuity would provide a regular guaranteed income for a fixed number of years, or for the rest of your life.
You don’t have to take an annuity with your current pension provider. Different providers will offer different rates. It’s important to shop around to find the best rate available.
If you have certain health and lifestyle conditions you could even get a higher guaranteed income.
But it’s worth noting that once you've bought an annuity you can't usually change your mind, if your circumstances change.
Prefer some room to manoeuvre? A flexible income allows you to you keep your pension pot invested and withdraw regular or occasional lump sums.
You can choose the amount of income you take but there is a risk that your money may run out if you withdraw too much.
Or you can withdraw cash lump sums, this could suit you if you don’t need regular cash or just want some money for a special occasion.
Based on your personal circumstances the cash could be subject to income tax.
You can also leave it to grow...
Or take a mix of options.
It’s important to consider whether you’d like to carry on adding to your pension pot.
Depending on how you decide to take your pension, you may be limited in how much you can continue to save.
You don’t have to choose one option or provider. You can shop around to find the right product and the best income possible.
We hope you feel ready to start your retirement journey, if you have any questions then please get in touch.
