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Financial Consultation Henson Cirisp

Retirement Options

What are Your Retirement Options?  How Can You Prepare and What do you Need to Take Into Consideration?

 

What are your retirement options?  The world of pensions and retirement changed significantly in April 2015 when the UK pensions system was radicalised through what became known as Pensions Freedoms. In essence this gave people greater control and freedom than ever before when it comes to accessing their pension.

With increased flexibility and freedom however comes greater responsibility and decision-making.

Defined Contribution Options

For people with a personal pension (defined contribution) the options can include the following:

  • Withdrawing your pension as a lump sum – Known as an uncrystallised fund pension lump sum (UFPLS), this was introduced in April 2015. UFPLS allows you to take your pension in one go. So, if you have a £250,000 pension pot, you can take up to £62,500 (25%) as a tax-free lump sum, with the remaining £187,500 taxable at your marginal rate of 20%, 40% or 45%. Whether this is the right course of action or not is a matter for you and your financial adviser. You need to ensure that you are able to provide for yourself over many years of retirement.
  • Income Drawdown – This option allows you to keep the funds invested and take lump sums or a regular income as and when you choose. Using the example above, you could take your tax-free lump sum of £62,500 and leave the remaining £187,500 invested  and ‘drawdown’ as much or as little as you want in income.
  • Annuity – You could use your pension to purchase an annuity which would pay you a set regular income for the remainder of your lifetime. This usually has a number of options such as frequency of payment, options to increase alongside RPI, continue paying to a spouse in death etc.

It may also be possible to take a combination of these options.

Defined Benefit Options

Defined Benefit options are determined by the scheme rules and therefore the options available vary from scheme to scheme.

Typically, the rules will state that members must take a scheme pension at the scheme’s normal retirement age and a penalty may be applied if the benefits are taken before this date. The scheme pension would be payable for the remainder of your lifetime. Usually there is an option of taking 25% as a tax-free lump sum.

If your defined benefit pension is under the value of £30,000, you may also have the option to take it all as a lump sum. 25% would be tax-free and the remainder taxed at your marginal rate.

There are no Hard and Fast Rules to Planning for Your Future

With defined contribution pensions, there is no compulsion to take it at any age. If you wish, you can defer your defined contribution pension and live off other assets, including ISAs or rental income.With defined benefit pensions, the option to defer will outlined in the scheme rules. It may be that you can defer and receive a higher scheme pension once you do commence benefits.

You can even defer your state pension. In this case, when you eventually decide to take it you will get a higher monthly income or alternatively a lump sum.

We Can Support you and Help Explain Your Retirement Options

 

As explained, there are many options when you approach retirement. We are here to help explain the options and recommend the best course of action for your needs.

This will depend on the type of pension you have.

If you have a defined contribution pension, you can access your pension at age 55. At this point there will be a number of options available to you as outlined above.

If you have a defined benefit pension, the scheme rules will determine when you can start withdrawing money from your pension. The rules will also outline what options are available to you.

Defined contribution pensions can be cashed in. However, this would not be advisable. The first 25% of the pension would be tax-free, with the remaining 75% being taxable. It is usually more tax efficient to drawdown your pension over a number of years.

Defined benefit pensions can usually only be cashed in if they are below £10,000. You may also have the option to cash the pension in if the total of your pension benefits across all pensions is below £30,000.

As part of our service, we will calculate the level of pension savings you would require in order to enjoy a comfortable retirement.

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