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How do you want to retire? How do you want to use your pension pot? You might already have some ideas. Here are some options for you to consider.
Pension Options Advice
Take control of your retirement. Your pension options explained.
Understanding pension options at retirement
It’s worth taking the time to understand your pensions options now ahead of retirement, so you can take control. However, the more complex your needs, the more likely it is that you could benefit from talking to a Financial Adviser.
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Leave your pot invested
Leave your pot invested
Retirement doesn’t have to start at your State Pension age. You can delay taking money from your pension pot, leaving it invested with the potential to grow.
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Early retirement
Early retirement
If you’re made redundant, want a change in lifestyle, or need to due to ill health, you may be considering early retirement. It’s important to think about your income needs and how retiring early will affect the lifestyle you can afford. You can only access your pension before 55 in a few very specific circumstances; serious illness, and if you have a pension with a protected retirement age (such as those for Gymnasts or Footballers.)
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Phased Retirement
Phased Retirement
You might be considering a gradual move towards retirement, cutting down your working hours but still benefitting from the routine of employment. We have cashflow planning tools that can help you visualise changes to your income and create a plan for the future. Find out more when you're ready to withdraw your pension:
Withdrawing your pension -
‘Full’ retirement
‘Full’ retirement
When you’re ready to leave work completely, you don’t have to draw on your pensions immediately. You’ll find there are many different ways to use your pension pot. Well talk about these in the article below.
Options for your pension pot
With these considerations in mind, here are some of the pros and cons of these retirement options to help you consider choices for your future income:
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Annuity
A product that guarantees an income for the rest of your life
- Different types of annuity are available allowing you to design the kind of retirement income you want.
- Can provide a fixed income, protected against market performance.
- Some annuities provide Death Benefits to your partner or dependants.
- Once your annuity is out of its cool-down period it may be irreversible.
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Withdraw Lump Sums
Keep the remaining amount invested as you withdraw custom amounts
- Provides a cash injection which can pay off debts (such as a mortgage) as you enter retirement.
- For partial pension encashment there may be minimum amounts you can withdraw, and a limit on the number of withdrawals you can make.
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Cash in your whole pension pot
This is an option, but you’ll need to think carefully about how to use these funds and there are likely to be significant tax ramifications
- Use your funds to provide a retirement income your way.
- Bear in mind that there are tax implications to withdrawing large sums and you could run out of money in retirement.
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Flexi-access drawdown
Create a flexible income with greater control over your pension funds
- Immediate access to your pension funds.
- Use your pension pot however you wish, but bear in mind that there is a risk of your funds running out.
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Leave it invested
If you don’t need any additional income when you reach retirement, its worth considering if you should leave it invested and give your funds the possibility to grow.
Considering your pension options
Once you reach age 55, you will be able to access your Defined Contribution pension pots if you wish to.
How will your expenses change in retirement?
Just because you turn 55 doesn’t mean you have to use your pension fund. Any money you take from benefits, a salary, pensions or investments can be considered ‘income’ – and will affect your benefits or how you pay tax.
Plan your income. Don’t pay more tax than you need to
Remember to think about tax when you’re planning how much to take from your pension funds as this could push you into a higher tax bracket. If your total income exceeds your yearly personal allowance (£12,570) you’ll need to pay tax on the excess.
Your State Pension
You don’t need to have stopped working to receive the State Pension. You might find it a good way to top up your income if you’ve reduced your working hours. If you find your income is sufficient without it, you could choose to defer your State Pension and potentially get a higher yearly amount later.
Making your money last
The more flexible pension options come with the risk that you may run out of money. The good news is that you can tweak the amount of money you take as you go – up or down. Not sure what your retirement will look like? Our pension calculator can help you work out how much you’ll have.
How can Wren Sterling help plan your pension
There’s a lot to think about with pensions. And whether retirement is a long way off, or quickly approaching, financial advice can help you make the most of your assets. With a Wren Sterling expert on your side, we’ll make recommendations for how to make the most of your money – and crucially – we’ll make sure you understand what it means for you, and how it works so that you can feel more confident in your financial future.
FAQ
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Can you mix your pension options?
Can you mix your pension options?
Yes, but with will depend on how you use your pension funds. For example, you can buy an annuity with half your pension pot, keeping the rest in a flexible access drawdown to access larger amounts. For more complex retirement planning, we do recommend speaking to a financial adviser.
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When can I withdraw money from my pension pot?
When can I withdraw money from my pension pot?
Usually the earliest you can take money from a Defined Contribution pension is 55 (rising to 57 from 2028). There are two exemptions:
- Serious illness. Schemes may allow you to access your pension early if you are under 55, and have a terminal illness which means you are no longer able to work.
- Protected Retirement Age. In some careers, such as professional sports, early retirement is anticipated and their pension scheme will recognise this.
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Can I withdraw cash straight from my pension pot?
Can I withdraw cash straight from my pension pot?
Absolutely. As soon as you reach age 55 you can start to access your Defined Contribution pensions in lump sums or through flexible access drawdown. How much to take is up to you, but you should keep income tax rules in mind, to avoid paying unnecessary tax.
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Are you able to mix your pension options?
Are you able to mix your pension options?
You’ll be able to mix any of these pension options at different times in your retirement. For example, you can take some cash from your pot first and buy an annuity later.
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Can you plan your pension options before you’re 55?
Can you plan your pension options before you’re 55?
You’re never too young to begin planning. Unfortunately, retirement is an end from work, not an end to tax. Any decisions you make about retirement will affect your future income, so it’s essential to make the right decisions with your money.
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Is taking your pension pot in one go an option?
Is taking your pension pot in one go an option?
Yes you can take your pension pot in one go but we strongly recommend speaking to an expert first as everything apart from 25% of your pension fund is liable to tax at your marginal rate – and you can’t get it back. For example, if you have £400,000 in a pension fund and you cash it all in one go, you will get £100,000 tax free, but £300,000 would be subject to tax at the higher rate of tax (45%).
You’ll need to decide what you want to do with these funds and how to invest them. You’ll also need to keep an eye on your remaining funds and balance your need to replace your working income with having enough money to last for the rest of your life.
If in doubt, it’s always best to speak to a financial adviser, who can help you visualise your retirement income and how withdrawals could affect the fund value.
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Are your benefits affected when you start taking your pension?
Are your benefits affected when you start taking your pension?
It is possible for your benefits to be affected when you start drawing on your pension. Any money you take from benefits, a salary, pensions or investments can be considered ‘income’ – and may affect your benefits or how you pay tax.