Tax rules regarding pensions were changed in April 2015. This has allowed people easier and wider access to their pensions, and allowed greater choice on how to withdraw retirement income. You no longer have to purchase an annuity if you do not wish, and you can still benefit from your pension from age 55 (at the moment). Here are some pension options.
You are entitled to withdraw 25% of your pension as a tax free lump sum should you wish. The rest of your pension (75%) will be taxed at your marginal rate, so it is worth considering what you would do with the money. You can also leave the whole pension pot untouched, but check your pension contract if you do this.
Purchasing an annuity will guarantee you an income if you live longer than expected, but you do have to give up some or all of your pension (often 75%) to buy them. There are also different types to choose from. With a lifetime annuity, for instance, you will always have an income once you have retired as they last for the rest of your life.
These come in two forms, which are the flexi-access drawdown and the uncrystallised funds pension lump sum. Flexi-access allows you to leave your pension invested and take a regular income, whereas its counterpart allows you to take out many small lump sums as and when you want to.
You can now take your entire pension in its entirety should you wish. This was one of the reforms brought in in April 2015, and the first 25% is still tax free. Be wary of the remaining 75%, however, as there is a high probability that it will increase the tax you have to pay, since it is likely to be a much larger amount of money.
There are more options available, but if you are unsure as to which option is best, companies like Tilney can provide expert advice on which course of action is the best to take. There are also plenty of articles on the internet which go into further depth about the benefits and potential implications of different options, so make use of them if you wish.
With more options than ever regarding pensions, the range of choices may seem daunting at first. These choices, however, should allow you to make the most of your money when you retire, so choose wisely and review all your options before making a final decision.