Pension Freedoms

From April 2015, your options at retirement changed. You are no longer forced to take an annuity. Now you have four main options and it is important you take time to consider what the right course of action is for you.

Option One: Leave it invested

There is no compulsion to make any decisions at age 65. If you don’t need your pension income, you might want to leave it invested. A good pension plan, well invested, is a tax efficient vehicle providing investment flexibility and potentially tax free benefits on death. 

    

Option Two: Partial Income

If you are ready to take income, you don’t need to cash in the plan. You can take income direct from the pension, either by making partial encashments or by using a flexible drawdown. Both options benefit from the tax efficiency of pensions, but you may still be exposed to fluctuations in fund values.  

Option Three: Annuity

The traditional annuity is still an option, providing a guaranteed income for life. You will have decisions to make, such as single or joint life income, escalating or level and whether or not you want your 25% tax free lump sum, but this route might still be the best option for you.

Option Four: Cash In

Finally, the new rules allow you to simply cash in your pension and have the fund paid to your bank account. The first 25% of your pension fund is tax free, but the remaining amount is taxed as income. Before you decide on this option, we would suggest you make sure you check how much you will receive AFTER tax. With even a modest pension pot, you may find the encashment triggers a higher tax rate than expected.