Retirement fund options

Taking large amounts of income from your pension in any tax year can incur high tax charges, which is why it pays to have a good understanding of your retirement fund options. Currently, you can access your personal pension, and any set up by an employer, when you reach the age of 55. You do not need to be retired to access your pension funds, and so many people already access their pension before fully retiring. Please note that the retirement age will increase to age 57 in April 2028.

Since the introduction of the Pension Freedom rules in April 2015, there are now three main ways in which you can access your pension monies:

Uncrystallised Funds Pension Lump Sum (UFPLS)

An UFPLS enables you to take lump sums from your pension. In doing so, 25% of each lump sum payment is tax free, with the remaining 75% being taxed at your marginal rate. You may take your entire fund value, or a series of ad-hoc or regular payments, and there is no limit to the amount of payments you can take as your remaining capital stays invested.

However, once you take your first UFPLS payment your money purchase annual allowance will be triggered, meaning going forward you and your employer can only contribute £4,000pa into a pension fund.

Flexi Access Drawdown

With Flexi Access Drawdown, you can take 25% of your pension as a tax-free lump sum, and choose whether to take the remaining 75% (which is taxable at your marginal rate) then or leave it until a later date. This differs to an UFPLS in that with an UFPLS the remaining lump sum must be withdrawn at the same time as the 25% tax-free lump sum.

Flexi Access Drawdown can be beneficial for income tax planning and allows you to take income as and when needed. You can leave your remaining drawdown fund to any chosen beneficiary.

Annuity

An annuity is a guaranteed income payable either for a set period or a lifetime. We analyse the open market to provide you with access to the best annuity rates and terms to meet your needs.

We can advise you on the various types of retirement annuity available to you along with other alternative retirement income options. So, whether you want security or flexibility of income, you require access to an enhanced income to take your lifestyle or medical needs into account, or wish to ensure your loved ones are provided for in the event of your death we can help.

As annuity rates can change substantially and rapidly, there is no guarantee that when you do purchase an annuity the rates will be favourable. This could mean that your pension thereafter may be less than you hoped for.

Diversifying your retirement options

We believe it is important to tailor your retirement planning solution to meet your changing financial needs. As such, more than one of the above approaches could be beneficial at different stages in your retirement.

If you’d like to find out more about planning for and during your retirement and making the most suitable use of your retirement fund, please contact our team.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Income drawdown will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value. The level of income you take will need to be reviewed if the fund becomes too small – this is more likely the higher the level of income you take.

The income you receive may be lower than the amount you could receive from an annuity, depending on the performance of your investments.

The rules governing how much income you can take directly from your pension fund may change. This could mean that the income you can take from the investment no longer meets your requirements.