Due to the changes introduced by the government in April 2015, when you reach the age of 55 (rising to 57 in 2028) you now have more flexibility than ever when it comes to taking money from your pension pot.
But before you do anything with your hard-earned cash, it’s important to take the time to understand your options, as the decisions you make will affect your income in retirement. If you are planning to take money from your pension plan, it’s important to ask yourself if you really need it right away.
Taking money from my pension plan
When and how you take your money can make a big difference to how much tax you might pay and how long your money will last.
Most pensions will set an age from which you can start taking money from your pension. They will also have rules for when you can take your pension earlier than normal, for example if you become seriously ill or unable to work.
Deciding how you want to do this
When the time comes to start taking money from your pension, you will need to decide how you want to do this. If you have got a personal pension or a defined contribution pension, you could take up to 25% of its value as a tax-free lump sum.
The remainder of your pension fund will be taxable and may either be taken as cash, used to purchase an annuity (a guaranteed income for a specific period or for the rest of your life), or you may leave the money invested taking withdrawals on a regular basis, or as and when you need.
Different levels of risk and security
With a defined benefit pension, you may be able to take some of its value as a tax-free lump sum, but this will depend on the rules of your scheme. The rest of the money will be paid to you as a guaranteed income for the rest of your life.
The different ways of taking your money have different levels of risk and security, and potentially different tax implications too. As with all retirement decisions, it’s important to take professional financial advice on what’s best for you.
Everybody’s situation is different, so how you combine the options is up to you.
- Children’s pensions
- Defined benefit (or final salary) pensions
- Defined contribution pensions
- Personal pensions
- Self-Invested Personal Pensions (SIPPs)
- The state pension
- Annual allowance and lifetime allowance limits
- Busting myths about pensions
- Increases to pension age and new normal minimum pension age
- Pension freedoms
- Pension withdrawal methods
- The lifetime allowance
- Delaying retirement
- Generating income from investments throughout your retirement years
- Importance of a retirement wealth check
- Retirement goal setting
- Retirement planning
- Reviewing your retirement plan
- Staggered retirement
- Taking control of your retirement plans
- What can I do with my pension?
- What happens to my pension on death?
- Discretionary Fund Managers
- Market timing
- Minimising risk
- Multiple asset classes
- Portfolio insulation
- Pound cost averaging
- Principles of investing
Growing your wealth
Goals based investing
- Cash flow modelling
- Creating a financial roadmap
- Investment objectives
- Timescales and market activity and the impact of losses
- ‘What if’ scenarios
- Discussing legacy planning with your loved ones
- Inheritance Tax (IHT)
- Inheritance Tax Residence Nil Rate Band (RNRB)
- Lasting power of attorney
- Lifetime transfers
- Making a Will
- Preserving wealth for future generations
- Protecting your assets for the next generation
- Slicing up your wealth pie