Retirement income

After a lifetime of working and saving, retirement is your chance to relax, enjoy your freedom and make time to do what you want. Arranging how to take your retirement income is an important decision you'll have to make. 

What you choose to do with your pension savings is a big decision, so it’s important to get it right.

It might be a good idea to take financial advice. A financial adviser can look at your individual circumstances and give you specific recommendations based on your unique personal and financial situation. 

Are you on track to have enough income in retirement?

As you approach retirement, think about whether the income from your pension, savings and any investments will be enough to give you the kind of lifestyle you want.

Consider how much you will need to live on in retirement. If there’s a shortfall between the income you expect and the lifestyle you want, review your savings and investments to make sure they’re working as hard for you as you would like.

Your retirement income options

There are various options to secure an income as you approach retirement. If you have a defined contribution pension, normally you can take up to 25% of your pension pot as a tax free lump sum from your 55th birthday (rising to 57 in April 2028).

With the rest you can choose to buy a guaranteed income for life (typically buying a lifetime annuity), keep it invested and make withdrawals (flexi-access drawdown), or withdraw it all as a lump sum (but there are important tax considerations for doing so).

Your capital is at risk so you may get back less than you originally invested.

Flexi-access Drawdown

You can take 25% of your fund as a tax free lump sum. The remainder of your pension pot is invested, and you can take regular or ad-hoc withdrawals, with the potential for your fund to benefit from investment growth.

The fact your pension fund is invested means its value can fall and rise, and if you take too much out of the plan your pension fund could be depleted or could run out altogether, which could affect your standard of living. Any withdrawals made above the tax free cash amount are taxed as income.

Lifetime Annuity

An annuity is a contract between yourself and an insurer which, once entered into, cannot usually be changed. 

 A conventional lifetime annuity enables you to use some or all of your pension pot to buy a guaranteed income for the rest of your life.

Annuities can provide an income for you and your spouse/partner, and can be arranged to rise with inflation. They can also pay guaranteed sums over a fixed term, or offer increased payouts based on lifestyle factors. Income from an annuity is subject to income tax.

Annuity rates depend on your individual circumstances such as age, health and lifestyle factors as well as the rates available at the time of purchase.

State Pension

Don’t forget the State Pension. The State Pension age is currently rising and varies between 65 and 68 for both men and women. It could rise further in future years and is subject to regular review.

If you reached State Pension Age on or after 6 April 2016, the new full State Pension is worth £164.35 per week., but the actual amount you will receive depends on your National Insurance record. You should obtain a state pension forecast from the government.

Stock market-based investments are not like building society savings accounts as your capital is at risk and you may get back less than you invested. The value of your investments and any income from them may fall as well as rise. The tax treatment of your investments depends on your individual circumstances and prevailing legislation, both of which may change in future. There are a number of tax considerations for withdrawing your pension fund as a lump sum and you should seek financial advice before making any decisions.

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