If you are nearing retirement age, you may be considering what you can do with your defined contribution pension pot. There are a variety of options available to you and typically you can take 25% of your pot as a tax-free cash lump sum, but what can you do with the rest?
There are many ways you can take your defined contribution pension pot, to ensure you are making the best decision to suit your needs and personal circumstances it is good practice to seek pension advice from an independent financial adviser to ensure that you have the most effective and efficient pension planning strategy in place that is tailored to your personal financial situation and provides a sufficient income for your retirement.
If you are looking for independent pension advice in Lincoln and the surrounding areas, we can help you find the right pension adviser to help you plan for your future in these uncertain times and provide a good level of income for your retirement.
The financial advisers we recommend are experienced in retirement and pension planning and regularly work with their clients to provide support and guidance on all aspects of pension advice in Lincoln and the surrounding areas.
Let’s take a look at some of the solutions that may be available to you to give you a better understanding of your options before speaking to a financial adviser.
Leaving your pot untouched
When you reach your selected retirement age you do not have to start taking money from your pension pot, you can leave your money invested until you need it. Leaving your pension pot untouched may be a viable option if you continue to work after your selected retirement age and leaving it invested could mean that your pension pot could grow and you could have more money to last a shorter length of time. If you decide to leave your pension pot untouched, you would not be liable to pay tax on your pension pot.
Buy an annuity
You can use the money you have saved in your pension pot to buy an insurance policy called an annuity that guarantees you an income for the rest of your life – with no restrictions on how long you live. It is possible to take 25% of your pot as tax-free cash and buy an annuity with the other 75%. You would be liable to pay tax on your annuity income.
This type of drawdown provides you with an adjustable income from your pension pot, which means you can take a regular income from your pension pot but are able to make changes or take cash sums if needed. You are able to take 25% of your pot as a single tax-free cash sum, the remaining 75% is invested to give you a taxable income.
Take small cash sums
It is possible with some but not all pension providers to take smaller sums of cash from your pension pot, how much and when you take it is up to you. Each time you release a small chunk of money, 25% of that sum is tax free and the rest is taxable – meaning that your 25% tax-free amount is paid over a period of time rather than in one lump sum. It is important to mention that some pension providers may charge a fee for taking out cash.
Take the whole pot in one go
It is possible to cash in your pension and take your pot in one go by taking your whole pension pot as cash, this would break down into 25% being tax free and the remaining 75% would be taxable. While this may seem attractive, it would mean that your pension would not provide a regular income.
It is imperative to seek independent financial advice before making any changes to your pension pot and to ensure you are making the best decision based on your needs and financial objectives.
At Pensions.org we can help you find a registered financial adviser for pension advice in Lincoln and the surrounding areas. All of the financial advisers we recommend offer bespoke financial advice that is tailored to your unique personal circumstances and meets your financial and retirement objectives.