Combine your pension options

You can continue contributing to your pension, but once you withdraw any taxable income over the 25% tax-free amount, the Money Purchase Annual Allowance (MPAA) comes into effect. This limits your total contributions to defined contribution pensions to £10,000 per tax year – and exceeding that could result in tax charges.

This depends on which options you combine. If you buy a guaranteed income for life (pension annuity), income stops when you die, meaning your partner or family won’t receive anything. Although, there are optional features you could add on which will allow this.

For any money left over in your pension savings, which you’ve left untouched, or perhaps never got round to taking through setting up a flexible income (pension drawdown) – this can be passed to loved ones.

The way this is taxed depends on your age at the time of death. If you’re under 75, your beneficiaries can typically receive the money tax-free – either as a lump sum or as income. If you’re 75 or older, the money will be taxed at the recipient’s marginal rate. You can nominate who you’d like to receive your pension, and it’s worth reviewing this regularly to make sure it reflects your wishes. 

Combining options won’t be right everything. Everyone’s different, and your individual needs, goals, and circumstances will play a deciding factor in what pension options you combine. For some, combining options might not make sense at all. Selecting just one option might be better suited. Financial advice can help.