Your pension choices

Reaching retirement?

From age 55 you will be able to access your pension savings and it’s really important that any changes or choices you make suit you and your future needs.

There are pros and cons for each option and, depending on your personal situation and your plans for the future, we can help you decide which is the best one.

Every person, pension scheme and provider is different and getting the right combination requires experienced knowledge of pensions and careful consideration of your lifestyle and future.

It doesn’t have to be time consuming but you really mustn’t leave it to chance.

As a very basic overview here are the three main options which will be among those considered:

Annuity Pensions

Annuity – providing a guaranteed income.

Buying an annuity can be the right choice for some people, particularly if you’re looking for a certain and guaranteed income for life. An annuity will give you the option to take 25% of the fund as tax free cash and can be tailored to your personal situation and requirements.

However, the diference in annuity rates can be signifcant, so you’ll need to shop around and get careful, experienced advice as to what’s best for you. Additionally, once purchased an annuity cannot be changed or undone even if your situation changes and, as returns are linked to interest rates at the time of purchase, if interest rates rise you could be disadvantaged.

Full Encashment

Full Encashment – if you want full access to the whole of your pension fund.

This may be the right choice for you if you want full access to all your pension savings. With full encashment you will be entitled to 25% of your pension savings free of tax, however, the remaining 75% will be taxed as income for that year, and you may fnd you are paying a higher rate tax charge. Even standard and low rate tax payers will initially pay high rate tax but may be able to reclaim the diference.

You must also consider that once the funds have been released from the pension, they will form part of your estate and will therefore be included in Inheritance Tax Calculations.

You must also give careful consideration to what you will live of in the future, once you’ve spent your pension savings. Tempting as it may appear, there are some signifcant disadvantageous to this option and you’ll need thorough advice as to the implications before you chose full encashment.

Flexible Access / Flexi Draw Down Pension

Full Encashment – if you want full access to the whole of your pension fund.

A relatively new pension device, the Flexi Access or Flexi Draw Down pension does what it says, namely it gives you enormous exibility as to how you treat your pension.

This is a very popular form of accessing your savings as you can use it very much like a bank account and withdraw money when you need to and pay money in if you want.

Some people may choose to semi-retire and only take a small amount each month to supplement their income. With a exi draw down you have the option to take 25% of the fund as a tax free lump sum and leave the balance with potential for growth.

Or you can pay in or withdraw regular or lump sum payments should you wish and your pension savings will not be included in your estate and therefore are not subject to Inheritance Tax.

You may also be entitled to tax relief on contributions and money inside the plan grows free of tax.

However, it can be slightly more expensive to run this type of scheme than older style pensions and you must consider that your investment may go down as well as up in value.