Pension Questions Answered

How much can I release from my pension and what are my options?

You can take a maximum cash lump sum, which is tax free, of up to 25% of your pension fund, the balance has to be used to either provide an immediate income or it can be deferred and taken at a later date.

Deferring taking the income was not an option before April 2006 and with a lot of existing pension contracts it is still not allowed. However; there is a way you can achieve this even if your current plan doesn’t allow it.

One advantage of deferring taking the income means that this part of your pension fund remains invested, which could result in a bigger amount when you eventually chose to take it, although if investments perform badly you could end up with less. Because of these risks it is not an option which is suitable for everyone.

Whether you decide to take income from your pension now or defer taking it until some point in the future, you will also have a choice about how your income is paid. All these choices and options available can seem complicated and confusing, and it is important to make sure you make the right decisions that are going to suit you best.

Can I take out more than 25% as a cash sum now without an immediate ongoing income?

Whilst you are not able to release more than 25% of your pension fund tax free, there are ways that you can increase the immediate total cash sum you receive by drawing down a one off annual payment without having to take an ongoing regular income now. This is another option that was not available before April 2006 and may still not be possible with your existing contract. However; there is a way it can be made available to you, although it is important to note that there are disadvantages as well as advantages to this.

Can I take out less than 25% as a cash sum now without an immediate ongoing income?

This is possible, even if it is not offered to you by your existing pension provider. It can be a very beneficial option for those people who do not need the maximum 25% tax free cash sum available now. For example, you may have a need for a specific amount, which is less than 25% of your pension fund’s current value: by only taking what you need from your pension fund now it has the advantage of leaving more funds invested in your pension plan and therefore means more should be available for you at a later date, although the value of your fund can go down as well as up.

You do not lose your entitlement to the balance of the 25% you didn’t take, so this can be accessed either when you chose to retire or, if you have a change in ircumstances, you may need it sooner.

Again, there are both advantages and disadvantages with this option so it is important to make sure you are aware and understand both.

Am I able to take just income without a cash lump sum and what are my income options?

It is possible to take an income without the need for a cash sum and there are a number of options available to you. Which option is best for you will depend on your situation and circumstances and the size of your pension fund.

One option you can chose is to buy an annuity with your pension fund and take advantage of the best rates on the open market (known as the “open market option”). However; there are many different ways an annuity can be paid to you, so it is important to make sure you get the right one for you. You can also take advantage of enhanced rates if you are a smoker or in ill health.

As an alternative it may suit you better to leave your pension fund invested and simply draw an income directly from it.

Whichever option you chose it is always a matter of making sure you get the one that best suits you both now and for the future and that you are fully aware of both the disadvantages as well as the advantages.