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Options at Retirement

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." Jim Rohn 
  

There are a number of options available to you when you come to take your retirement benefits. The main purpose of most pensions is to provide a regular income for life on retirement, however, a proportion of the pension fund can usually be used to provide a tax-free lump sum (known as a pension commencement lump sum).

You will normally be able to take up to a quarter of the value of your pension as a tax-free lump sum. Taking a tax-free lump sum will reduce the regular income you can get from your pension.

There are a number of ways in which a pension can be used to provide a regular income, but the most common way is for the accumulated pension fund, less any tax-free lump sum taken, to be used to purchase an annuity from either the existing pension provider or another insurance company.

An annuity will provide you with a regular income for the rest of your life. As the existing provider may not offer the best rates, it is advisable to 'shop around' to see if another company will offer a higher income. This is known as the open market option. There are a wide variety of different types of annuity available, including those that increase over time or which will continue to be paid to a husband, wife, civil partner or dependant on death of the annuitant (the person that purchased the annuity). It is not possible to cash in an annuity at any time.

In addition to annuities there are specialist products that offer an alternative method of providing an income from your pension fund, your financial adviser will be able to provide details about these options. Depending on the type of pension, it is normally possible to take pension benefits from age 50, although this is due to increase to age 55 from 6 April 2010.

Lifetime Allowance