How much pension income will I get?
As you approach retirement your pension pot suddenly becomes more important as beyond retirement the likely hood is that your income will be less than it is today.
The pension income generated by your pension pot will be determined by the performance of the annuity or fund where your money is invested, which means that you have choices on where to place what is probably one of the most important financial decisions you will make.
What you probably won't know at this stage is what pension income your pot will provide you; if you purchase an annuity the pension forecast will depend on your age, the size of your pension pot and your health, see examples below.
With effect from 1st April 2015 you can take up to 25% tax free cash sum from you pension pot and if you wanted to the remaining 75% but you will pay tax on this amount and of course you will need to think carefully about how much pension income you need to live off for the rest of your life.
We have teamed up with Age Partnership one of the UK's leading pension specialist, who will ensure that your pension pot will work hard for you if you decide to go down this route - in fact for some people this can provide up to 50% more income than the poorest performing places to invest your money.
This is why getting professional financial pensions advice or at least guidance could pay dividends, in fact research by the International Longevity Centre reported that those taking financial advice were significantly better off than those who did it themselves.
Take a look at your choices by clicking on the "tabs" above this section or use the pension pot calculator to find out how much pension income you could generate
The pension calculator will provide you with a forecast of your pension income based on the size of your pension pot. If you have more than one pension pot then add them together and enter the total amount of your pension pots.
If you have had several jobs and are unsure as to whether you have accumulated any pension pots over the years, then you can use the government find my pension tracing service to track them down.
Can I cash in my pension?
If you are at least 55 years of age you could take your whole pension pot as cash; 25% tax free, but 75% will be taxed at your normal taxable rate, so it should be a considered decision.
You can take the cash in chunks if you wish, you don't have to take it as one lump sum, provided you remember that once you have withdrawn more than 25% you will start to pay tax on any part greater than this.
Another option is to mix and match your pot by withdrawing sums of up to 25% of the pension pot value and then invest the remaining amount into an annuity or allowable investment fund - see our Guaranteed Income and Flexible Income sections for details.
You could take more than 25% and up to 100% of your pot in cash, but take care as you will pay tax on any amount greater than 25% whether you do it in lump sums or smaller amounts.
As a start point you may wish to use the pension income calculator to see how much your pension pot will generate.
Can I get a guaranteed pension income?
You can use your pension pot to purchase an annuity which will give you a guaranteed income for life.
An annuity is a type of insurance policy that enables you to convert your pension fund into a fixed regular income for the rest of your life; you should note that when you die with most annuities the money invested is not returned, although in exchange for some income sacrifice you can purchase a plan that will provide a reduced income for your spouse/partner.
You should always shop around for the best annuity deal as they can vary, although companies like Age Partnership that we have teamed up with, do offer an annuity comparison service.
Buying an annuity doesn't stop you from taking up to 25% of your pension pot as a cash sum tax free.
Your health and lifestyle could have an impact on the income you receive and unlike life insurance plans that penalise you for being in ill health, with an annuity your ill health could enhance your income by up to 50%.
The advantages of buying an annuity is that you will receive a fixed income which is important to a lot of people during retirement, but the downside is that once you have purchased it, you will not be able to change your mind or make changes to the policy.
The team at Age Partnership will be happy to discuss your options with no obligation or cost to you and they are so confident about offering you the best pension income on the market that they will give you £100 should you find a better return under their "Best Rate Guarantee" offer.
Before arriving at a decision to purchase an annuity the team at Age Partnership will discuss all of the available options with you, so you can be sure that you will have all the information you need in plain English.
I want a flexible pension income
This is sometimes known as a drawdown pension as you are affectively investing your pension pot and then drawing down sums that you choose to support your retirement.
This "pension income" can be withdrawn regularly or as often as you like; this will of course reduce your pension pot over time, unless your investment out performs the amount withdrawn.
The most common type of investment vehicle for personal pensions is a Self-Invested Personal Pension or SIPP as they are known
How it works
Your pension pot is invested in a tax efficient fund either chosen by you or you can get pension advice and guidance to help you; whilst an increasing number of people are managing their pension funds themselves, it's not for the feint hearted, after all for most people this money has to provide a pension income in retirement and so to get it wrong could be a costly mistake.
For the more experienced and confident person some companies offer the opportunity for you to trade in shares and move your money between funds; online, over the phone or via a mobile application (app) giving you even greater flexibility and visibility over your money.
There are various options available to you, such as, Hargreaves Lansdown, AJ Bell, Fidelty, AXA Self Investor, Charles Stanley Direct, Interactive Investor and others, they all offer "do it yourself" options as well as a full advice service.
As you would expect you pay more for the advice service.
Here at Over50choices we have teamed up with the Age Partnership who can help you understand your pension options; please click here to use their free pension calculator or go to our Advice Section to take a look in more detail.
Should you die before your 75th birthday any money remaining in your pension fund will be passed tax free to your beneficiary, if you are older your beneficiary will pay tax at their marginal rate. (Unlike annuities.)
You don't have to invest 100% of your pension fund into an investment fund, you could invest a percentage and then the remainder into an annuity to give a fixed income and or of course take some as cash, tax free up to 25%.
Do I have to take my pension when I retire?
When you reach 55 years of age you can access your pension pot although for most of us we will be working until normal retirement age of around 65.
If you are in a company pension scheme based on your final salary there will be rules around the benefits of the scheme some or all of which won't be available unless you maintain the scheme.
Currently you are only allowed to take your money from a final salary pension scheme (also known as defined benefits scheme) if you take financial advice from a pensions expert and they make this recommendation.
If your pension scheme is not a defined benefits scheme then you will be allowed to access your pension pot and make alternative arrangements if you wish.
So in summary you can leave your pension pot with your existing company or move it to another provider. If you have more than one pension you may wish to consider consolidating them into one scheme.
When you reach retirement age there is no requirement for you to take your pension at that time, you can leave it or move it and leave it, that decision is yours although you may wish to consider financial advice to help you make the right choices.
Do I need pensions advice?
Unless you have a good knowledge or an experienced investor you should consider taking financial advice to establish the best pension income options.
We have partnered up with Age Partnership who have a team of pension income specialists who can talk you through your options and you can decide whether you want the full advice service or guidance that will point you in the right direction, but you will be responsible for your investment decisions.
We also recommend that you consult the government's Pension Wise website to help you further understand your pension income options.
Sorting out your pension arrangements is something that you hopefully will only do once so it's worth getting it right and talking to the pension experts for a no obligation chat. And don't worry they won't bombard you with financial jargon, but just plain English so you can be sure of being looked after.
The Age Partnership pension income financial adviser can help you with:
- Your guaranteed income options
- Flexible income options
- Cash withdrawal & tax implications
- Deferring your pension requirements
- Combination of the above
The Age Partnership have been awarded the highest possible rating of "Exceptional" by Investors in Customers in 2012, 2014 and again in 2015, so you can be confident of the high-level of service you will receive when you speak to them.
Whether you're happy to decide for yourself or want a recommendation, we are here to help you get the right pension income to enjoy your retirement.