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When you give up work, your pension is likely to play a key role in creating an income. So, an essential part of retirement planning is often deciding how you\u2019ll access your retirement savings.<\/p>\n\n\n\n
Last month, you read about the importance of setting out your retirement lifestyle goals and how financial planning could help. Your income will play a key role in whether you can turn many of them into a reality. So, read on to discover what your options are when you want to withdraw money from your pension.<\/p>\n\n\n\n
If you have a defined contribution (DC) pension, you\u2019ll retire with a pot of money that you can access in several ways.<\/p>\n\n\n\n
While the freedom to decide how and when to withdraw money from your pension could help you create an income that suits your needs, it also means you need to understand your options. You\u2019ll be responsible for ensuring your pension creates financial security for the rest of your life.<\/p>\n\n\n\n
1. Taking a lump sum<\/em><\/p>\n\n\n\n You can withdraw lump sums from your pension as and when you choose to. <\/p>\n\n\n\n This could be a good option if you have one-off expenses. For instance, if you\u2019re taking on a home renovation project or want to lend financial support to a loved one.<\/p>\n\n\n\n However, you should keep in mind that pension withdrawals may be liable for Income Tax. While you can take up to 25% of your pension as a tax-free lump sum, withdrawals above this amount may be added to your income. As a result, taking a large lump sum could unexpectedly push you into a higher tax band.<\/p>\n\n\n\n 2. Using flexi-access drawdown<\/em><\/p>\n\n\n\n Flexi-access drawdown allows you to take a regular income from your pension that you\u2019re in control of. You could increase or decrease the income to suit your needs.<\/p>\n\n\n\n To ensure you don\u2019t run out of money in your later years, you might want to consider factors like life expectancy or how inflation could affect your income needs over the long term. If you take too much from your pension, there\u2019s a risk you could run out in the future. So, thinking about how you could create long-term financial security may be important.<\/p>\n\n\n\n 3.<\/em> Purchasing an annuity<\/em><\/p>\n\n\n\n You could also use the money held in your pension to purchase an annuity, which would then provide you with a regular income. Retirees often choose an annuity that will pay an income for the rest of their life, but you could also select an annuity that lasts for a defined number of years.<\/p>\n\n\n\n An annuity can be valuable if you\u2019re worried about running out of money or don\u2019t want the responsibility of managing your pension. However, it\u2019s less flexible than other options.<\/p>\n\n\n\n Mixing your 3 pension options<\/em><\/p>\n\n\n\n You don\u2019t have to choose a single way to access your pension \u2013 you can mix the options.<\/p>\n\n\n\n So, you could take a lump sum from your pension to kickstart your retirement plans. Then you might use a portion of the remaining amount to purchase an annuity to create a reliable income you\u2019ll receive for the rest of your life. The rest of the money you could access flexibly using flexi-access drawdown. <\/p>\n\n\n\n In most cases, you can access your pension when you\u2019re 55, rising to 57 in 2028. However, you don\u2019t have to make withdrawals at any point during your retirement if you don\u2019t want to.<\/p>\n\n\n\n In fact, leaving money that you don\u2019t need in your pension could make financial sense.<\/p>\n\n\n\n A pension is a tax-efficient way to invest. So, leaving your money in your pension to be invested in a way that\u2019s appropriate for you could help it grow further.<\/p>\n\n\n\n Money that\u2019s held in your pension could also be passed on to your loved ones when you die. Usually, pension savings aren\u2019t considered part of your estate for Inheritance Tax (IHT) purposes. Instead, beneficiaries may pay Income Tax on the money, which could be a lower rate depending on their other sources of income. So, holding money in your pension may form part of your long-term estate plan.<\/p>\n\n\n\n You should note that pensions aren\u2019t usually covered by your will. You will need to complete an expression of wishes with your pension provider to state who you\u2019d like to receive your pension if you pass away.<\/p>\n\n\n\n If you have any questions about how to access your pension or other aspects of your retirement plan, please get in touch. As financial planners, we could work with you to create a plan that\u2019s tailored to your goals and assets.<\/p>\n\n\n\n Next month, read our blog to discover how financial planning could help you bring together the different strands of retirement planning so you can enjoy the next chapter of your life.<\/p>\n\n\n\n This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.<\/p>\n\n\n\n A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.<\/p>\n\n\n\n The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. <\/p>\n","protected":false},"excerpt":{"rendered":"Leaving your money in a pension could make financial sense<\/strong><\/h3>\n\n\n\n
Contact us to talk about your retirement plan<\/strong><\/h3>\n\n\n\n
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