Retirement Options and Pension Alternatives

For all pension funds other than Final Salary Schemes there are two ways of accessing your benefits. These are either by way of Annuity or Pension Drawdown or possibly by a combination of both.

On the 6th April 2006 (A-day) the government introduced changes to pension regulations, commonly known as Pension Simplification, and Pension Drawdown became known as Unsecured Income plans (USP).

One of these changes allowed for benefits to be taken from Protected Rights funds. These are the funds that were obtained as a consequence of contracting out of SERPS and paid to your plan/scheme by the National Insurance department. Until these changes were made Protected Rights could not be taken until you reach State Retirement age.

The earliest normal age that benefits can be taken from a pension fund is 50, however this age limit is due to rise to age 55 in 2010. Final salary scheme members may also access their pension funds early by transferring the benefits to a Pension Drawdown plan or by purchasing an annuity. With both an annuity and Pension Drawdown, you have the option of taking benefits as a combination of a tax-free lump sum of 25% and a regular income. However with a Pension Drawdown plan you do not have to take any income and you do not have to retire in order to take your benefits, therefore your pension fund (less the tax-free lump sum) can remain invested and continue to grow until you wish to take your income or you reach age 75.

The Pension Drawdown plan can only be used until you reach your 75th birthday. You then have to make a further choice between purchasing an Annuity or by transferring it to an Alternatively Secured Pension (ASP). You cannot have any more tax-free cash as the whole of the fund value must be used to secure an income.

Combination of Options

You do not have to use either the annuity route or the Pension Drawdown route to the exclusion of the other. You could buy an annuity with part of your fund and use the remainder for a Pension Drawdown, or, if you have an occupational scheme with one employer and a personal pension you could take your benefits from the occupational scheme (which may entitle you to additional tax-free cash) by way of an annuity and you could take your benefits from the personal pension by way of an Income Drawdown. We will discuss your personal circumstances with you and provide advice that is most appropriate to your needs.

If you would like to discuss your options please call us on 01803 211214 or complete our email enquiry form and we will call you.