As pensions are intended to help fund a comfortable retirement, the government prevents you from accessing the money until the age of 55, under the current pension rules. Once you reach the pension age, you can access your pension money in 3 different ways:
- Tax Free Lump Sum - Limited to 25% of the overall pot (and your Lifetime Allowance - we cover this later on!). This is a tax free payment which can be paid to you.
- Flexible Drawdown - You can draw on your pension as you wish, as lump sum payments or a regular monthly income. With flexible drawdown, the monies that you receive is taxed on the PAYE scale, thus at your marginal rate of tax. If you are a basic rate taxpayer, you will pay 20% on all income payments.
- Purchase an Annuity - You can also use the money held within your pension to purchase an annuity. An annuity is a guaranteed income for the rest of your life, and they have numerous variations with fixed periods and indexation of the income amount.
If you would like to discuss this further, please get in touch with us at 0800 808 5653.