There are various ways you can use your pension fund – and other assets – to provide you with an ongoing income upon retirement. The right advice is essential though, as the decisions you make at this time are crucial and can have far-reaching implications for you and your family.
It is more important than ever to have an effective plan in place to access the income that you need in retirement from the most tax-efficient source. Current pension rules mean that many personal schemes are deemed outside of your estate for inheritance tax purposes, for example.
As you approach retirement your Wealth Manager will work with you to identify and understand your requirements and sources of income, before devising a plan which allows income to be ‘drawn down’ in the most tax-efficient way.
We will continue to review and adjust this regularly, allowing you to enjoy financial peace of mind throughout your entire retirement.
Phased income drawdown: the best option if you are under 75 and don’t require full access to your tax-free cash. It can be very tax-efficient as income is comprised of both taxable ‘income’ and tax-free cash. Upon retirement, there are various ways to use your pension fund and other assets to provide you with an ongoing income.
Tax-free cash: personal pension funds usually have the option to take 25% as a tax-free lump sum with the remainder used to provide income or further taxable lump sums.
Lifetime annuities: traditional annuities mean you hand the money in your pension pot to an insurance company in exchange for a guaranteed income for life. There are various options including index-linking and spousal benefit.
Enhanced annuities: it’s possible to obtain underwritten annuities for individuals in ill-health, such as – if you are a smoker – an annuity which will allow you to obtain an annual income of up to 20% more.
Flexible drawdown: involves taking withdrawals directly from your fund, leaving the residual fund to continue being invested and to potentially benefit from tax advantaged growth. You can draw any amount from your pension scheme, however only 25% is tax-free and anything else is subject to tax at your marginal rate. You can decide the amount and frequency of withdrawals but this type of arrangement may offer no guaranteed income and may erode the fund over time. We therefore strongly recommend you seek advice before signing up to a flexible drawdown arrangement.
Past performance is not a guide to future returns. The value of investments can fall as well as rise. Investors may get back less than invested.