Your Options at Retirement

There are lots of options as to how, you can access your pensions, below we explore them.

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    Your options at retirement

    You have a number of options available to access your pension from as early as 55.  Your existing Provider may offer you any of the following options.  Alternatively you usually have the option to transfer to another provider, who may offer more flexibility or better charges / annuity rates.

    • Annuity – This is the traditional way to access your fund, providing a guaranteed level of income for life
    • Flexi-access Drawdown (FAD)- Take what you want, when you want
    • Uncrystallised Fund Pension Lump Sum (UFPLS)
    • Phase Tax Free Cash with income
    • Use a combination of the above
    • Partial transfer – Use part of your fund for one of the above options


    Accessing your pension

    Most pensions normally offer a tax-free lump sum, commonly known as Pension Commencement Lump Sum (PCLS), sum of 25%.  The remaining fund is used to provide an income which is subject to Income Tax.


    Transferring to another Provider

    Some Providers offer better rates than others.  As such it is always advisable to research the market to see if there are preferable charges or annuity rates offered elsewhere.



    Annuities are what most people think of as their pension in payment.  This is the traditional method of converting the pension you have built up, into an income for retirement.  An annuity will typically pay 25% of you pension pot as a tax free lump sum upfront known as a Pension Commencement Lump Sum (PCLS) and then pay a regular guaranteed income for the rest of your life.  Annuities can normally be purchased through your existing provider or by transferring.  The amount of income you can purchase will depend on your age, the size of your pension pot and the rates available.  Poor health can give you access to enhanced rates too.


    Flexi-access Drawdown (FAD)

    Flexi-access Drawdown is the most popular method of accessing pensions now.  You are able to access the same 25% of tax free cash as with an annuity, but you do not have to take it all at once.  FAD allows you to take what you need, when you need it.  Anything you do not take, remains invested with the potential for future growth.

    It is the same for your income element, although you will be taxed at your marginal rate on this part.  This means we can flex your income and tax free cash to suit your lifestyle requirements.  We can also use a combination of both taxable income and tax free cash for greater tax planning. You may want a higher income prior to your state pension commencing for example, or a smaller income whilst you reduce your hours at work, to subsidise your earnings.  FAD gives greater control to start, stop or change what you take out.

    Your pension fund continues to be invested through FAD, this means it will be exposed to investment risk.  The value of your pension can both increase and decrease, which may be more of a risk at retirment.  This means that careful planning and regular reviews are essential to ensure that your fund is performing in line with your attitude to risk and that it will be able to provide you with the income you retire throughout your life.

    It should be noted that once you first access the income element of your pension, then you will be restricted to a maximum of £4000 pa, as a maximum pension contribution you can make in any one year.


    Uncrystalised Fund Pension Lump Sum (UFPLS)

    Similar to FAD, but not quite as flexible, most schemes offer a form of UFPLS, whereby you can access either all or sometime part of your fund as a single transaction.  So you may have £100k and wish to take £10k of it.  With UFPLS you will always take Both the tax free and income element together.  So in this example you would take £2,500 tax free and then £7,500 subject to income tax.  The two key differences with FAD are that:

    1. You can not access the tax free cash without the income
    2. You can not trigger a regular income stream


    Phased Retirement

    More commonly clients people are phasing their retirement benefits.   This means either partially retiring, so working part time, or accessing part of their fund, rather than assigning it all to a retirement fund.  This option can give you more flexibility, further potential growth as your fund remains invested and greater control over efficient tax planning.


    Important Note:

    Pensions are a long-term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore, the tax treatment of pension benefits can and may change in the future.

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