Your Options At Retirement

The purpose of your pension is to provide you with an income in retirement. Benefits can usually be taken any time from age 55 but employer related schemes may stipulate a different age. Commonly, up to 25% of your accumulated fund can be taken as a tax-free lump sum, and the balance should be used to provide income either by a scheme paying a scheme pension directly from the scheme, purchasing an annuity on the open market option (OMO) or via one of the available alternatives such as Drawdown or Phased Retirement.Scheme Pension
Most commonly offered by Final Salary Schemes (Defined Benefit schemes). The Pension fund pays a scheme pension directly from the fund itself.

Annuity purchase/OMO
An annuity is a contract with an insurance company to provide a regular income for life in exchange for a lump sum. The annuity can be level, increase each year to keep pace with the cost of living, offer a guarantee period and/or provide a continuing income for a spouse/dependant on your death. There are many different types of annuity available in the market place. Some are investment linked such as with profit or unit linked annuities. Some offer more favourable terms for those with ill health or people who are smokers for instance.

Drawdown Pension
There are two forms of Drawdown Pension, known as Capped and Flexible.

  • Capped Drawdown – After drawing all of the Tax Free Cash up front, the balance of the fund remains invested with withdrawals being taken directly from the fund. There are limits on the amount of income that can be taken. Post March 2013, the Government Actuaries Department (GAD) set the maximum level of 120% of a conventional level annuity and depends on current gilt yields. There is no minimum so effectively you do not need to draw any income. These limits are reviewed every three years up until age 75 and annually thereafter.
  • Flexible Drawdown – has no such maximum limit but you must be able to prove you already have a secured minimum income from other pension sources of at least £20,000 per annum. With this plan, after drawing the Tax Free Cash, all of the fund can be drawn at outset, taxed as income.

Phased Retirement
Phased retirement enables you to take part of your pension as required over the years from age 55. Your benefits will usually be divided into 1,000 identical segments so that you can ‘crystallise’ any number of policies as and when you require to achieve the income requirement. Income is therefore made up of part Tax Free Cash and part annuity/drawdown. Ideal for those who do not require an immediate Tax Free Cash lump sum to be paid.

We will be able to provide more details and make a recommendation based on your own circumstances.