DAMM Community Hub Logo

COMMUNITY

How can I access my pension at retirement?

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. 

Budgeting for the year ahead


 

Whether you plan to retire fully, to cut back your hours gradually or to carry on working for longer, you can now tailor when and how you use your pension – and when you stop saving into it – to fit with your particular retirement journey.

There’s a lot to weigh up when working out which option or combination will provide you and any dependants with a reliable and tax-efficient income throughout your retirement.

With most defined contribution pension schemes, individuals will have access to 25% tax-free cash at retirement, with the remainder taxed at your marginal tax rate. You do not have to take the 25% tax-free cash a single lump sum and taking your tax-free cash does NOT trigger the money purchase annual allowance. However, as soon as you take an income from your pension (i.e. anything over and above the tax-free cash) this will trigger the money purchase annual allowance, meaning the amount that you can pay into your pension and receive tax-relief will be limited to £4,000 per anum. 

Flexi-access drawdown

Flexi-access drawdown

With this option you can set the income you want, and withdraw this on a regular basis, with the rest remaining invested. However, the investment risk with this option does mean that your funds may run out, and therefore the amount you withdraw may have to be adjusted periodically depending on the performance of your investments.

As you can normally take 25% of your pension tax-free, you may choose to take this as a lump sum or simply take 25% of each withdrawal tax-free. For exmaple, if you withdraw £1,000 per month, £250 of this would be tax-free with the remainder taxed at your marginal tax rate. Alternatively, you may take the full 25% in lump sum withdrawals and then get taxed on the full £1,000 each month.


 

Purchasing an annuity

Purchasing an annuity

You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum then convert the rest into a taxable income for life called an annuity. This 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. Visit the Money Advice service for further information.


Important considerations

There are a range of alternative options available, such as lifting your whole pension pot, however this carries a range of implications that must be fully considered first. Visit Money Advice Service for further information on this. You don’t have to choose one option when deciding how to access your pension – you can mix and match as you like, and take cash and income at different times to suit your needs. You can also keep saving into a pension if you wish, and get tax relief up to age 75.