Consider the tax implications and the risk that your money could run out
Under new flexible rules introduced in April 2015, you can now use your pension pot to take out cash as and when you need it. However, there are tax implications and a risk that your money could run out.
With flexi-access drawdown, when you come to take your pension, you reinvest your pot into funds designed to provide you with a regular retirement income. This income may vary depending on the fund’s performance and it isn’t guaranteed for life.
Investment-linked annuities also pay you an income for life, but the amount you get fluctuates depending on how well the underlying investments perform. If the investments do well, they offer the chance of a higher income. But you have to be comfortable with the risk that your income could fall if the investments don’t do as well as expected.
Guaranteeing a regular retirement income for life
A lifetime annuity is a type of retirement income product that you buy with some or all of your pension pot. It guarantees a regular retirement income for life. Lifetime annuity options and features vary – what is suitable for you will depend on your personal circumstances, your life expectancy and your attitude to risk.
Regular retirement income for life or for a set period
An annuity is a type of retirement income product that you buy with some or all of your pension pot. It pays a regular retirement income either for life or for a set period.
You now have more choice and flexibility than ever before
Following changes introduced in April 2015, you now have more choice and flexibility than ever before over how and when you can take money from your pension pot. It’s important to take your time to understand your options and seek professional financial advice, as what you decide now will affect your retirement income for the rest of your life.
If you’re self-employed, saving into a pension can be a more difficult habit to develop than it is for people in employment. There are no employer contributions, and irregular income patterns can make regular saving difficult. But preparing for retirement is crucial for you too.
Low-cost option through your workplace
The National Employment Savings Trust (NEST) is a low-cost pension you may be able to join through your workplace or if you are self-employed. Once a member, you can carry on saving this way even if you change jobs or stop working.
Providing greater flexibility with the investments you can choose
A self-invested personal pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have greater flexibility with the investments you can choose.
Minimum standards if you don’t want too much choice
Stakeholder pensions are a form of Defined Contribution personal pension. They have low and flexible minimum contributions, capped charges, and a default investment strategy if you don’t want too much choice. Some employers offer them, but you can start one yourself.