What are my options for taking my pension?

You’ve spent years paying into one or possibly more pension schemes and now you’re at the point of retiring, you are likely wondering what options there are for your pension pot.

Upon retiring, people would traditionally use their pension pot to purchase an annuity and that would then provide them with an income for the rest of their life. However, since the introduction of pension freedoms in April 2015, there has been the option of the more readily available flexi-income drawdown product and some people are even opting for a combination of both.

Let’s take a look at your options and some of the pros and cons of each:

Annuity: this is an insurance contract for which you pay the provider a lump sum (usually your entire pension pot) and you are then provided with a guaranteed income for the rest of your life.

There are varying different types of annuity, but the advantage is that they are all at the risk of the provider and not the retiree, giving you full security in your later years. A disadvantage of this particular type of product is that you cannot cash it in, so once you have selected your product, your savings will only be available to you in the form of your annual income.

Flexi-income drawdown: this is a product which enables you to access your savings at any time, while investing the remaining amount to provide an ongoing income throughout your retirement.

With a flexi-income drawdown, you have the option of accessing your savings at any time. The flexibility of this option means you can decide at any time whether to take the whole lot, withdraw cash “as and when”, or set up a regular income stream and investing the remaining amount of your pension pot, however that amount is subject to the varying value of your investments and so is less secure.

Both options are subject to the same 25% tax exemption and, in fact, another option is to combine the two.

Because of pension freedoms, there are now more attractive options for annuities and so an alternative route is to use your tax-free lump sum of 25% to purchase an annuity, while investing the rest in a flexi-income drawdown to adapt to your future needs.

There is a lot to think about when choosing a retirement option.

At Amethyst we can work with you to help you choose the best plan for your circumstances and how you can best save for your future, just get in touch and we will do the rest.

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