If you are nearing retirement age you may be starting to consider what to do with your pension pot and be thinking about the opportunities available to you. With a defined contribution pension when you reach your selected retirement age you can usually take 25% of your pension pot as a tax-free lump sum.
There are several ways you can use the remaining funds such as using your pot as an adjustable income or taking smaller cash chunks. The option that is best suited to you will depend on your personal circumstances and will require careful consideration. Before making any changes to your pension pot it is advisable to seek independent financial advice to ensure you are taking the optimal course of action.
If you are nearing retirement age or are planning ahead for the future and would like advice on how you can use your pension pot, we can help you find a local financial adviser in Chelmsford that specialises in pension advice.
Our recommended financial advisers provide pension advice in Chelmsford and across Essex to work with you to identify opportunities available to you and determine the best solutions for your pension pot. All of the financial advisers we recommend provide advice that is tailored to your unique circumstances.
How you can use your pension pot
There several options when it comes to your pension pot and what you can do with it once you reach retirement age, including:
Leave your whole pot untouched
Just because you can have access to your pension pot, it doesn’t mean you actually have to do anything with it. If you are still working when you reach your selected retirement age, you may decide to leave your pension fund invested in your pot until you need it.
Leaving your whole pot untouched could result in your pension pot growing as it will have longer to benefit from investments. Even if it does not grow, leaving your pot untouched could mean a higher retirement income as the same amount of money would not have to last as long.
Leaving your pot untouched would also mean that you wouldn’t be liable for tax on your pension fund and should you die before 75 your pot can be passed on tax free.
Take cash in chunks
Should you wish to and depending on the rules of your scheme, you may be able to opt to take your pot in smaller cash sums until your pot runs out. You would have control on how much you take and when you take it. Taking your pension pot in smaller cash chunks would mean that your 25% tax-free cash lump sum is not paid out in one go but over all the smaller cash chunks. For example, each time you take a chunk of money 25% would be tax-free.
Your pension pot would be invested to provide you with a regular income in retirement. You have control of how much you take, when you take it and how long you want your pot to last. You will still receive your 25% tax-free lump sum and the other 75% is invested to give you a regular taxable income.
Also known as flexi-access drawdown, this option may not be offered by all pension providers and as your pension pot is invested the growth of your pot would depend on investment performance and could result in a loss.
If you are looking for pension advice in Chelmsford we can help you find a specialist pension adviser that can provide advice on all aspects of pension planning, including advice on the best ways to use your pension pot when you reach retirement age.
Seeking pension advice will help you to gain a clearer understanding of the different options available to you and ensure that you have the most effective retirement planning strategies in place for your personal circumstances.
At PensionAdvice.org we can help you find a FCA registered financial adviser for independent pension advice in Chelmsford. The financial advisers we recommend offer bespoke pension advice in Chelmsford on all aspects of pension and retirement planning.