Whether you are saving for your retirement, or about to retire, the recent changes will give you more freedom, choice and flexibility than ever before over how you access your pension savings.
PENSION FREEDOM IS HERE: The power to do what you like with the money you’ve saved for your retirement – no laws forcing you to buy an annuity and no government telling you what you and can and can’t do with your hard-earned cash.
If you want to blow the lot on a sports car, the pension’s minister is quoted as saying “you’re more than welcome”
1. From age 55 you will have a range of options about how to use your pension if it’s the type of scheme where you save into your own pot. These options don’t apply if you have a fixed income pension linked to years of service.
2. There is no rule that says you must take money out of your pension from age 55. Many people keep working into their 60’s which gives you more time to save and a decade or more of potential extra growth.
3. There are 3 main options for how to take money out of your pension. You can take flexible income, fixed income or take the whole thing as a cash lump sum. With all options 25% can be a tax free lump sum with the remaining taxed as income. This means you could pay zero, 20%, 40% or 45% tax on what you take out of your pension.
If you do use your pension to buy a Lamborghini, you’ll pay enough tax to buy the Treasury a Porsche.
4. If you choose flexible income, known as Drawdown, you remain invested and take your money out gradually. You can change the amount you take out and if you die before spending all of it, your remaining pension savings can pass on to your loved ones.
5. The second option is fixed income called an Annuity. There is no flexibility but the peace of mind of a guaranteed income for life will suit some people. If you start with a flexible income you can move to a fixed income later.