Pension Freedom - What are your pension options?

Posted 31 October 2019 | Pensions


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The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

Your Pension Savings – Your future options

You may have now reached a stage in your life where you are considering your retirement options. How you might retire, and how your pension savings can fund that retirement. Retirement is changing and the way you access your money in retirement needs to reflect this. Nowadays, there are many options available to retirees. It’s important to understand the options now available to you and whether your existing plan can meet your needs.

Your Financial Adviser can help you carefully consider whether the options you need are available from your current plan and if not, what you can do about it and how much it will cost.

Pension Freedoms Explained

In April 2015, the Government introduced “Pension Freedoms” which gave you, greater freedom and flexibility over how to access your pension savings. Anyone now aged 55 and over can take either a partial or whole lump sum out from their pensions savings. No tax will be paid on the first 25%, and the rest regardless of how and when it is taken is taxed as if it were a salary at your income tax rate. There are now essentially four main ways for you to access your pension savings.

Four main ways for you to access your pension savings

1. Buy an Annuity
You can convert your pension pot into a taxable income for life
by purchasing an annuity. There are different annuity options
that would determine the level of income you would get. Not all
annuities provide death benefits, so you may not be able to pass
your pension pot on to your beneficiary.

2. Flexi-Access Drawdown
Your pension pot is invested, but you are able to withdraw an
income as and when it suits you. This provides you with flexibility
to set the income you want. However, the level of income, or how
quickly your fund becomes depleted can be dependent on the
performance of your investment, and unlike with an annuity, your
income isn’t guaranteed for life.

3. Take it all out as cash
You can cash-out all your pension savings. You can normally take
25% tax free and you pay income tax at your marginal rate on
the rest. This could cause a larger tax bill the following tax year.

4. Take part of it out as cash
You can cash-out part of your pension savings. You can normally
take 25% tax-free of the amount you take with the rest taxed at
your marginal income tax rate. You can do this as many times as
you like until you no longer have any pension savings.

As you approach retirement it is increasingly important to review your pension savings and the options available to you. Pensions Freedoms 
has now allowed you to take full control of your retirement options.

However, not all pension investments have the flexibility to take advantage of these new freedoms, and your current pension plan may not provide you with the control, visibility or flexibility that a new ‘modern’ pension plan would. 

Why Consider A New ‘Modernised’ Pension Plan

A modernised pension plan sits within a platform, allowing you to consolidate your pension and investment savings together in one place. This makes planning for retirement, reviewing investment costs and estate planning easier. Whilst a platform offers various advantages for pension planning it isn't necessarily right for everyone.

• Take control of your pension savings.
• Income flexibility to suit your retirement planning.
• Keep future income options open.
• Optimise your tax efficiency - both on any money
you might leave invested, and Inheritance Tax.
• Flexibility to change your approach to risk.

Important points to consider
• Not everyone will need access to ‘Pension Freedoms’ so you
could end up paying costs for something you don’t need.
• It is almost certain that the costs you pay will be higher with a new personal pension plan.
• There is no guarantee that the funds you invest in will perform any better than your current plan. Your existing fund could outperform the new one.
• The cost of the new plan and any ongoing fees deducted form the funds will reduce the rate of potential growth..

It is clearly crucial to speak to your Financial Adviser before making any decisions, to understand whether the options available to you meet your needs. Suitable pension planning advice can allow you to access your pension savings in the most tax efficient manner and ensure you don’t pay more tax than you need to.

Please get in touch if you would like to review your current pension plans and check that they meet your needs and requirements.

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