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What are your Retirement Options?


In his 2015 Spring Budget, then-chancellor George Osborne introduced sweeping changes to the way that pensions are taxed. The new pension freedom rules have led to the over-55s being faced with a variety of different choices when taking and investing their nest eggs.

Prior to April 2015, when most people with a defined contribution pension reached retirement age, the only option available was to buy an annuity, which involved using pension savings to purchase a guaranteed income for life.

People retiring each year

Roll on six years or so, it currently means anyone aged 55 and over can take the entire amount of their defined contribution pension scheme as a lump sum, paying no tax on the first 25%, with the remaining taxed as if it were a salary at their Income Tax rate.

Before this, tax restrictions ensured that many of the people retiring each year were required to purchase an annuity – a product provided by insurers which turns a pension pot into a secure retirement income for life. The problem with some annuities is that they have become poor value, particularly for savers who bought the wrong kind.

The total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £45 billion. (1)

Official figures published show that £30.7 billion of flexible payments has been withdrawn by 4.2 million individuals between Q4 2017 through Q1 2021.

Increased responsibility

With pension freedoms’ popularity continuing to grow and savers being entrusted with increased individual responsibility, it is worrying that 94% of adults are flying solo, not seeking any financial advice each year.(2)

The Money and Pensions Service (MAPS) have launched its strategy with a vision of ‘everyone making the most of their money and pensions’(3).

Take your time, and seek advice

If you are considering your pension freedom options, the future has ‘got a lot more interesting’. Remember: take your time, and seek professional financial advice. The pension freedoms are available from age 55, but there is no need to act at age 55. And your time in retirement may be longer than ever before.

Pension freedom options

There are a number of different options to take your defined contribution pension pot:

  • Leave your whole pot untouched - You don’t have to start taking money from your pension pot when you reach your ‘selected retirement age’. You can leave your money invested in your pot until you need it.
  • Guaranteed income (annuity) - You use your pot to purchase an insurance policy that guarantees you an income for the rest of your life – no matter how long you live.
  • Adjustable income - Your pot is invested to give you a regular income. You decide how much to take out and when, and how long you want it to last.
  • Take cash lump sums - You can take smaller sums of money from your pot until you run out. Your 25% tax-free amount isn’t paid in one lump sum – you get it over time.
  • Take your entire pot in one go - You can cash in your entire pot – 25% is tax-free, the rest is taxable.
  • Combine your options - You can also combine different options. However, to do this, you would usually need a bigger pot.

Be aware of the scammers

Make sure you don’t fall victim to scammers. Your pension is likely to represent the biggest single source of your private wealth, so the attraction for scammers is obvious. Since January 2019, it has been illegal to make these cold calls. See the FCA’s ScamSmart website for more advice.

Don’t overlook the tax

Think about the matter of tax. How will this impact on your particular situation? The way in which you access your pension savings can have significant implications on how much tax you may need to pay and on the income in your retirement.

Professional financial advice

Finally, don’t forget the importance of obtaining professional financial advice. You may have been saving for 30 years, so take more than 30 minutes when considering your options. Let us provide you with the professional advice to ensure that you end up with the best options for your particular situation.

A long life needs a smart plan

The way you take your money for retirement will have a big impact on how long it will last – and how much tax you pay. To discuss your options or to find out more, contact us to arrange a meeting.

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If you'd like advice on income protection or to speak with one of our financial advisers near you, please get in touch with James Marlow on 01132 211327 or email

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