Pension Freedom

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 some time to consider the right course of action 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 then you might want to leave it invested. A good pension plan, well invested, is a tax efficient savings plan with flexible investment options and potentially tax free benefits on death.

Option Two: Partial Income

If you are ready to take your income, you don’t need to cash in the plan. You can take income directly from the pension, either by making partial encashments or by using a Flexible Drawdown plan. Both options benefit from the tax efficiency of pensions but you may still be exposed to fluctuations in the 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 do you want a single or joint life income, level or escalating, and do you want to take your 25% tax free cash? With these options in mind, this may still be the best route 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% is paid tax free, but the remaining amount is taxed as income. Before you decide on this option, we would suggest you check how much you would receive AFTER TAX. With even a modest pension pot, you may find the encashment triggers a higher tax bill than expected.


Now more than ever

While these new choices provide us with more flexibility to make our own decisions as to how we want our retirement income paid, they also raise more questions.

Does your existing pension provide a guaranteed annuity rate? If so, it may be hard to beat elsewhere. If you take the whole fund out, once you’ve paid any tax due, where will you invest it? Will that produce a better rate than the annuity? What risk will you be taking if you invest for income without using an annuity?

With the new pension rules, getting good, unbiased and affordable pension advice is more important than ever. We can help you make all these choices and compare your current pension provider with the new options available.

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