Pensions - Taking BenefitsApollo Pension & Investment Advisers | Medway, Kent
Your Pension Options
If your pension is a defined benefit pension scheme provided by an employer it is likely to be in your best interest to take benefits from the scheme. It is rare for us to recommend someone transfers out of a defined benefit pension scheme (sometimes known as final salary schemes) so please contact the scheme administrators and ask them to help you access your benefits. Small Pots – If your pension pots are valued at under £10,000 then you maybe able to use the triviality rules to take the fund as a lump sum so ask the scheme administrator for details if this is the case.
For those who have defined contribution pension arrangements (Personal Pensions, Stakeholder Personal Pensions, Group Personal Pension, Money Purchase Occupational Schemes) and are already over age 55 your initial choice is between buying and annuity or drawing down on your pension:
|Annuity||This is where you use your pension fund to provide you with a tax free cash lump sum, with the remaining fund being used to provide a guaranteed level of income which is paid to you for the rest of your life.|
|Drawdown||Provides more flexibility for clients who may require access to their tax free cash lump sum but not necessarily require a fixed level of income that annuities offer.
Your pension fund can provide you with an income similar to an annuity but this can be increased or decreased or even stopped depending on your requirements from year to year.
The remaining fund is invested in a range of funds based on your overall attitude to risk.
Generally 25% of your pension will be available to you tax free and the rest will be taxable as income. This is relevant whether you buy and annuity or drawdown on your fund.
Many clients who opt for the certainty of an income from an annuity take the maximum 25% tax free lump sum up front, with the remaining fund balance being used to purchase an annuity.
If you are entering into drawdown it will depend on your circumstances and objectives as to whether you take some or all of the tax free lump sum early on. Some people only want the tax free lump sum initially and they delay taking any income. Others need to top up income, maybe they are semi retiring and need to supplement reduced earnings, and in this case the tax free portion can be taken as part of the income to maximize tax efficiency.
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Selecting the right drawdown option, choosing the most appropriate provider and developing a sustainable strategy will be amongst the most important decisions you will make in your lifetime. You need expert advice.