Accessing your pension savings

This is also known as an annuity. It works by using all or part of your pension savings to set up a guaranteed regular income for life. This is paid to you like clockwork no matter what. Once started it can’t be changed, so although it may give peace of mind, it can also be inflexible. Depending on your circumstances, you can tailor an annuity with additional features, such as arranging for your income to rise in line with inflation or another fixed rate.

As advisers, we can help by…

Setting everything up, and taking care of all the necessary details. This will include listening to your goals and concerns to ensure any additional features are tailored to you. For example, if you’re suffering from ill health, you may qualify for a higher level of income than usual.

This is known as drawdown. Your pension remains invested and you decide how much income to take, and how often. This allows for greater flexibility, giving you the freedom to amend things as your needs change. However, there’s always a degree of uncertainty around how much you can take in the future – nothing’s guaranteed. There’s even a risk that if you spend too much, or your investments don't perform as expected, your money could run out.

As advisers, we can help by…

By using cash flow projections we can estimate how far your money could go. This will enable us to make tax-efficient recommendations around what level of income you can safely afford to take now and in the future. We’ll also advise on how the money you leave untouched should remain invested for when you come to need it.

This could be your entire pension in one go, or bit by bit in smaller chunks. Either way, you’ll receive 25% tax-free and pay income tax on the rest. For example, say you had £100,000 in your pension, you’d be able to take £25,000 tax-free, and then pay tax on the remaining £75,000.

As advisers, we can help by…

Going through all the implications of this option and creating a plan to help ensure you have enough money in the future. Taking all of your pension as cash can also have a big impact on the amount of tax you pay. For example, it could push you up into a higher tax bracket. It could also affect your entitlement to means-tested benefits like universal credit.

So it’s really important to know all the facts before making any decisions. Tax will depend on your circumstances and the options you choose. Tax rules can also change in the future.

It’s worth noting that you’re not limited to just picking one option. Many people choose to go for a blended approach to achieve a better balance. This might mean using a portion of your pension to set up an annuity, with the rest going towards drawdown – offering a degree of certainty and flexibility.

As advisers, we can help by…

Recommending what portion of your pension savings should go towards each option. This is something many people struggle with, but by listening to your goals and needs we can advise the most suitable split.

You might decide to leave your pension untouched and do nothing. Doing so could give your money more opportunity to grow in value, which might suit if you feel you need more time before you choose to retire. Although remember, because your money is invested it could also drop in value. Another reason to leave your pension untouched is simply that you don’t need it. Maybe you have other sources of income that you’d rather use up first.

As advisers, we can help by…

Ensuring your money remains invested in the most appropriate way. This isn’t a one-and-done approach, and we’ll perform regular reviews to make sure everything’s on track. That way, you can be confident knowing your money’s continuing to work hard behind the scenes.