Your options on retirement
At a glance
- Take a guaranteed income (an annuity), with or without a cash lump sum
- Take a flexible income (drawdown), with or without a cash lump sum
- Take it all as cash, with the first 25% tax free
Taking a step into a different life is always a mix of excitement and fear. And retirement is no different. There are many choices to make – not least what you’ll want to do with your time and how you want to receive your savings.
These days, you have a lot of options for how you take your savings.
Your savings, your choice
How you choose to take your savings is entirely up to you, and you can choose from:
Buying a guaranteed income (annuity)
A guaranteed income and cash
Flexible income – the ‘drawdown’ option
All as cash
This will provide you with an income during retirement and, if you choose, an income for your spouse and other dependants after your death.
The amount of income your account will buy will depend on:
Whether you choose a pension that increases every year – this will help your pension to keep up with inflation but it will start at a lower level than one which doesn’t increase each year
If you wish to add a spouse and/or dependant’s death in retirement pension – your dependant will receive a pension if you die before them, but your own pension will be lower
If you choose a guaranteed period for your pension – if you choose a guaranteed period, for example five years, and die within that period, your pension will continue to be paid to your dependants until the end of that period rather than stopping with your death
You can take 25% of your account as a tax-free cash lump sum before you buy an annuity. This means your regular annual income will be less than if you hadn’t taken out a lump sum. If you have benefits in the DC section as well as the DB section, you can use your DC benefits to provide a lump sum, and take all of your DB benefits as pension.
With the ‘drawdown’ option, you would transfer your retirement savings out of the Plan and move your money to a different provider who specialises in Income Drawdown plans. You would then take income from your savings as and when you need it. Don’t forget – you can take 25% of your retirement savings tax-free from the provider you choose. You can either take 25% of your full pot as a tax-free amount or you could take 25% of each withdrawal as a tax-free amount until you've reached your maximum tax-free cash allowance. With this option it’s important to keep your investment choices under regular review, and consider the tax implications carefully.
Finding out more
All these options can seem overwhelming, but there’s plenty of information available to help you make your choice.
Why not start with the Your pension choices explained booklet, which you can find in the Library? You can also find information about your choices on the Government’s MoneyHelper website.