Taking Your Pension

What are my pension options?

The table below shows the various options for converting a defined contribution pension pot into retirement income when taking your pension. This is a common type of pension where you pay in a regular amount but unlike a final salary pension, the income isn't guaranteed.

Pension option	Tax free cash?	Regular income?	Guranteed income?	Can I run out of money?	Will my tax rate go up?
Annuity	Up to 25% of fund	Yes	Yes	No	Unlikely as income is planned in advance
Drawdown	Up to 25% of fund	Yes	No	Yes	Unlikely as income is planned in advance
Take all money	Up to 25% of fund	No	No	Yes	Likely
Take lump sums	25% of each withdrawal	No	No	Yes	Depends on lumps sum amounts

The options in more detail

Annuities

Traditionally prior to 2015 annuities were the main way people funded their retirement if they had a personal or workplace pension (defined contribution).
Prior to 2015 people would buy an annuity with their pension savings and it would pay a guaranteed income for the rest of their life. The 2015 pension rule changes meant that this was not the only option, from 2015 you can access all of your pension savings from age 55.
An annuity is still a good option if you want a guaranteed income for the rest of your life and you don't want your income to fluctuate according to stock market performance and prefer it to fall in line with inflation.

Pension Drawdown

One of the most popular options is an Income or pension drawdown for many people when retiring, they convert or access their defined contribution pensions. Drawdown allows you to keep your pension fund invested in the stock market, and draw out an income as and when you wish. You can take out as much as you want each year. The drawdown rules changed in 2015 to allow beneficiaries to take a lump sum or income tax-free if you die before 75 and at their marginal rate if you die after 75. It is likely to work for you if you want your money to continue to be invested and you want the flexibility to take sums out as and when you choose and want to take out different amounts each year, just bear in mind each drawdown is subject to taxation.

Cash in Pension

In 2015 major changes were introduced which allowed you to take your entire pension fund at the age of 55 in one go as cash and you could spend the money as you chose.
Great news but there are a few things to consider including significant tax implications. The first 25% is tax-free and the balance of the fund will be taxed at the highest rate of tax when taking into account the rest of your income.
Things to consider include there may be charges for cashing in the whole pension fund and not all pensions will offer this option. It's likely to be a good option if you need money quickly or you have suffered from poor health and an income for life is not a priority or you are looking to reinvest your retirement fund.

Lump Sums

The 2015 pension rule changes also included a new, flexible way to take money out of your pension savings. You can leave money in your pension and then take lump sums when you are ready with 25% of each lump sum being tax-free and the balance of the lump sum being taxed at the normal rates. The correct term for this is uncrystallised funds pension lump sums (UFPLS). It simply means you have not 'crystallised' your pension pot by turning it into an income. Think of it as a savings account allowing you to take cash out when you need it whilst the balance is allowed to grow. This is a good option if you plan to take different amounts of money each time and you want to spread your 25% tax-free allowance over a period of time and mitigate any investment risk.

Final Salary Pensions

If you have a private final salary (eg defined benefit) scheme or a funded public final salary scheme you are able to take advantage of the 2015 rules by transferring your money into a defined contribution pension. Things to consider are you are likely to lose valuable benefits by doing this, these include a guaranteed income which is linked to inflation. You will need to receive the appropriate independent pension advice if you want to transfer from a defined benefit to a defined contribution scheme. We would also highly recommend the pension advice is from an FCA registered business or person to ensure your money is safe and not invested in unregulated investment schemes which could lead to the loss of your funds.

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Why use us?

A free no obligation pension consultation
FCA registered pension specialists
Locally based advisers
A free review of yours pension(s) with recommendations
A chargeable implementation service you choose to accept the recommendations

When taking your pension under the new rules it can be confusing to understand which is the best option for you given all the various options. Many people do not understand the tax implications of cashing in their pension and this can lead unexpected large tax bills.
Make sure you are fully aware of the implications prior to taking your pension to ensure there are no nasty surprises.

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Be Scam Smart

When taking your pension be careful of pension scams which can lead to the loss of your pension fund. Common methods of scam include unregulated investments offering high returns or offers of releasing pension funds before the age of 55.
Ensure any pension advice you recieve is from a
FCA regulated business or adviser to ensure your money is protected.

PensionEasy only work with FCA registered advisers to ensure peace of mind, advice in your best interest and no sting in the tail!

Pension Wise

You can seek guidance from the goverment organised
Pension Wise, although they are unable to offer personalised guidance they can give you your options. For fully personalised guidance you would need to seek advice from a FCA registered pension specialist.

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