When you’re working and paying some of your salary into a pension every month, you probably don’t give it much thought. But as the time to retire draws near, there are decisions to be made on how to use the money that you’ve been putting aside in your pension over the years.
How much you have managed to save during the years will depend on how long you have been paying into a pension and whether it’s a personal pension plan or a company one. You may have done it yourself with a Self-Invested Personal Pension.
What most people choose to do is to take a cash lump sum up to the value of 25% out of their pension savings from the age of 55 or when they actually retire. This is tax-free and you can use it how you wish. However, the rest of your pension isn’t so easily accessible. As your pension contains government contributions via tax relief it means that you can’t just fritter that fund away; it’s there to provide you with an income for the rest of your life.
The most common option that people about to retire take is to purchase an annuity. A pension annuity is where you cash in your pension savings (usually minus the 25% cash sum) for a lifetime income via an insurance company.
The amount of income your pension qualifies you for depends on the annuity rate that you get, as well as other factors including your health and life expectancy and whether you want your annuity income set to rise with inflation or at a fixed rate. You can find out what kind of income you are likely to obtain by using the pension annuity calculator from Age Partnership.
Age Partnership is an independent company that offers financial advice and solutions for those aged 55 and over. The company searches the annuities market for the best possible rates most suited to its clients’ needs. Taking out an annuity is a permanent commitment, so it’s best to seek independent financial before deciding which is best suited to your particular requirements.