Drawing money from your pension pot is a seemingly attractive option, giving the freedom to withdraw
either some or all of your fund as a cash lump sum, however you see fit.
Although, it is important that you consider the tax implications of this option. Typically 25% of any withdrawal will be tax-free but the remaining 75% will be taxed as income, potentially generating a large tax bill for you to pay.
Historically, a pension annuity has been the most popular option used by those approaching retirement.
Although other options are available; it remains popular because a pension annuity is still the only way to
turn your pension savings into a regular, guaranteed income for life.
Whether or not you are considering a pension drawdown or pension annuity, when handling your
retirement funds, it is important to seek advice.
The Financial Conduct Authority (FCA) recently said 30% of consumers go into a pension drawdown without seeking professional recommendations.
And often, people are sticking with their current provider instead of exploring their options and shopping around.
Drawdown v Annuity: What's the difference?
Pension Drawdown is considered a flexible ways to access your pension savings and manage your tax bill.
It allows you to be in control of your fund as there are no limits to the amount that you can withdraw
from your savings or when you can take it.
However drawdown can have its downsides. As pension savings remain invested, there is the potential
for them to reduce in value as well as increase because there is no guarantee of investment performance
meeting future income needs.
This means your pension income could run out during your lifetime if you're not careful.
With an annuity, you can convert your pension savings into a regular guaranteed income which will be
paid to you for the rest of your life.
Many people choose this option due to the peace of mind that comes from knowing that their pension
income will not run out before they pass away Once you have purchased an annuity you cannot typically
change your mind or cancel once the cancellation period is over, which is why it is vital to shop around to
get the best deal.
How to pick the best option for you?
Deciding on the right pension-income option for you might seem confusing and that's why talking to an
experienced specialist or financial advisor is so important.
Companies like Age Partnership who are impartial will provide guidance based on your situation - helping take the stress and worry out of the process.
Your current option and or provider may be the best option, but as with most things, shopping
around and seeking advice is the best way to find out.
We recommend that you take a look at the Government's independent Pension Wise website before
making any decisions regarding your pension-income options.
If at any stage you're at all unsure about which option is right for you, we have an in-house team of
friendly financial advisors, who can recommend the best options for you.
Visit agepartnership.co.uk or call freephone 08000 810 815 for further information.