Cashing In Pensions
For those coming to retirement age, there are a range of different options available when cashing in pensions savings.
All pension savers are entitled to cash in pension savings by taking 25% of their pension cash as a tax-free lump sum on retirement.
The remainder of their pension cash can be invested or used in several ways.
While converting pension cash into a regular income by purchasing an annuity is a popular way of cashing in pensions, this is no longer compulsory.
Find out more about your pension options – speak to an experienced adviser on 0800 678 5929
Cashing in Pensions – Income Drawdown
Income drawdown is a good option for those who do not yet need a regular income from their pension cash, perhaps because they are continuing to work part-time or have other savings or funds.
Those cashing in pensions with an income drawdown contract leave their pension cash invested in the stock market.
While keeping the pension cash invested in the stock markets is more risky than converting it into an annuity, it does offer this flexibility to withdraw (or ‘draw down’) varying amounts of your pension cash, as required. However, if you draw down more of your pension cash in any given year than the investment has made on the stock market, you are effectively eating into your capital and reducing the value of your cash pension fund.
When cashing in pensions, income drawdown has the advantage that your money remains yours, rather than becoming the property of the pension company, as it would if you purchased an annuity.
Get income drawdown advice online or call 0800 678 5929
Cashing in Pensions – Purchasing an Annuity
For most people, cashing in pensions means taking a lump sum tax-free, up to 25% of their cash pension, and using the remainder to buy an annuity. An annuity converts your pension into a regular income, and your cash in pension savings becomes the property of the annuity provider, who then guarantees you an income for life.
When cashing in pensions for an annuity, it is important to remember that your annuity does not have to be bought from your pension company. You have what is called a ‘free market option’ to shop around for the best annuity deal, and doing this with the assistance of an independent financial adviser can result in a significantly higher monthly retirement income for you.
There are various kinds of annuities, which offer various ways to cash in pension savings.
Converting your pension cash into a single life annuity gives you a pension cash payout only to you, which ceases when you die. Cashing in pensions for joint life annuities, however, provides a cash pension for the person retiring, and then for their spouse, after their death.
Cashing in pensions to purchase fixed rate annuities gives a fixed, constant payment of pension cash, which over time may lose value due to inflation. To combat inflation, you can also cash in pension funds to buy an index linked annuity, which rises in line with the Retail Price Index.
For smokers cashing in pensions, a higher monthly income can be secured by using their pension cash for an enhanced annuity, while those cashing in pensions and having a serious medical condition can receive a higher cash pension from an impaired life annuity.
Lastly, those cashing in pensions and opting for a with profits annuity will receive a variable income, as their pension cash will be invested in an investment fund.
Consulting an independent financial adviser is always wise as you prepare to cash in pension savings, and will ensure you purchase the annuity that is most suitable for you.
You can speak to our financial advisers on 0800 678 5929
