Your pension is undeniably one of the most important aspects of your retirement, and many investors are concerned with how best to build their pension pot.However, did you know it’s just as important to consider how you want to draw down on your pension when you retire?There are a few options for this, and we’re going to take you through them in this article.This way, you can have a clearer idea of how you’d like to access your pension savings in the future, and you can adjust your aims with your retirement planning service.
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What is pension drawdown?A pension drawdown is a specific process where you start withdrawing money from your pension in retirement.You can only begin drawing down on your pension when you reach retirement age, which is usually 55 – when accessing your private pension.All the savings you’ve grown over time will be sitting in your pension, and your drawdown is the specific way in which you want to start receiving this – with different options to choose from to best suit you.What are the options for pension drawdown?There are different options when it comes to drawing down on your pension:
- Flexi-access drawdown
When you first access your pension, you can take a lump sum of 25% of your total pot completely tax-free. The remaining 75% of your pension will remain invested with your chosen provider. You can also access this money at any time – giving you more flexibility over how you want to receive your pension savings, but there will be tax applied to withdrawals.Any money you don’t take out remains invested, which means your investments can go up or down.
- UFPLS
Uncrystallised Funds Pension Lump Sum (UFPLS) is another way to access your pension, and this is essentially taking your money out in lump sums.The first 25% of your pension will be tax-free, whilst the remaining 75% will be charged.However, you can take out as much as you want at any time – you can even choose to take your entire pension out in one lump sum.
- Annuity
Some investors can choose to purchase an annuity from an insurance company. This provides you with a regular income every month and is paid for through the money in your pension pot.The amount you receive will be based on:
- Your age and gender
- How much you have in your pension
- Interest rates
- How long you’re expected to live
There are various types of annuities, such as fixed-time payments, or some that continue paying your spouse or partner after you die.Is financial advice important for pension drawdown?Seeking help from a financial adviser can be a great way to start planning your pension drawdown process.Your experienced professional can fully assess your finances, including the money saved in your pension, the assets you own, and how you plan to live in retirement.This can help them make the right recommendations for your pension drawdown, so you can choose an option that aligns with your unique requirements.With the right guidance, you can receive your pension savings in the right way when you retire, to fund the comfortable retirement you’ve always wanted.If you need more advice on your pension, or even to build more confidence in your approach, speak to a financial adviser to receive tailored guidance when drawing down on your pension.—Please note, the value of your investments can go down as well as up.