Navigating the New Landscape of Retirement: Your Guide to Understanding Pension Freedom 

You 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 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.

Taxation and Advice

Whichever route you choose, to stay where you are, move now or if you decide to move later, it is worth remembering that you should always seek financial advice.

All pension income, other than the Pension Commencement Lump Sum (the tax-free cash element) is taxable at your highest rate of income tax. 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. So, it is essential that you speak with your Financial Adviser before you make any decision.

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

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.