In 2015 the Government announced something called pension freedom. It means anyone aged 55 (57 from 2028) and over can take the whole amount of their pension pot as a lump sum, paying no tax on the first 25% and the rest taxed as if it were a salary at their income tax rate. This freedom only applies to private pensions where you and/or your employer saved up a pot of cash for retirement. Technically these are known as ‘defined contribution‘ or ‘money purchase‘ pensions.
If you have such a pension (or pensions) there are several different options available to you:
● Leave your whole pot untouched – you don’t have to start taking money from your pension pot when you reach your retirement age. You can leave your money invested in your pot until you need it.
● Get a guaranteed income – you can use your pot to buy an insurance policy that guarantees you an income for the rest of your life, no matter how long you live – this policy is known as an ‘annuity’.
● Get an adjustable income – your pot is invested to give you a regular income. You decide how much to take out and when, and how long you want it to last.
● Take cash in chunks – you can take smaller sums of money from your pot until you run out.
● Take your whole pot in one go – you can cash in your entire pot. One quarter is tax-free, the rest is taxable. This could lead to higher rate tax being paid.
● Mix your options – you can mix different options. Usually you would need a bigger pot to do this.
It’s worth noting that not every pension provider may offer every option and so you may have to transfer your pension in order to access this product. Either way it’s certainly worth investigating what options are available and also if you can get a better deal from another provider.
Do I need the help of a Pension Specialist?
Not always, but if the value of your safeguarded benefit pension is over £30,000 then the government requires that you to seek independent financial advice before converting or transferring your pension (This is to ensure that you understand these special valuable features and therefore can make an informed decision on how to proceed). Safeguarded benefits are defined as benefits that are not money purchase or cash balanace benefits. This means defined benefits, guaranteed pensions including guaranteed minimum pensions and guaranteed annuity rates (GARs).
Many people are unaware that pensions can be transferred to different providers who may offer different options or indeed a better deal than you can get with your current provider.
If you’re reading this then chances are you’re not sure what options are available to you, not sure if you’re getting the best deal or not even sure what the value of your pension will be at retirement. Either way it’s probably worth giving us a call to arrange a short meeting to discuss your options.
Fortunately Karrek are experts in analysing the current state of your pension and offering the advice which is right for your particular circumstances. The main point is to understand what you have, what your options are and then choose the right option for you.
If you would like to discuss your pension options with one of our pension experts, Andrew Turner or Richard Olive, please submit your details here or call us during office hours.