Your retirement options
Pension freedom. Endless possibilities.
If you're left scratching your head at the thought of sorting out your financial future, you're probably not alone.
So if you're feeling a little perplexed about your pension, let us help you understand your options.
- Take a guaranteed income
You can use your retirement savings to buy an annuity. This will pay you a regular income at an agreed rate for the rest of your life. You can also take up to 25% of your total retirement savings as a one-off tax-free cash sum.
- Enjoy flexible access to your savings
Our income drawdown feature - Income Release - will let you dip into your savings and take what you need, whenever you like. You can still take up to 25% of your total retirement savings tax free. Either in one go or spread out to suit you.
- Have it all paid as cash
You can take all of your retirement savings in one go or in a series of chunks. The first 25% of each lump sum will be paid tax free.
- Leave it for now
Don't worry if you can't decide how to take your retirement benefits. You can leave them invested so they have more time to grow. You should remember that investment returns are never guaranteed so you could get back less than you put in.
What is it?
The Government set a limit on the amount of pension contributions you can make each year before you're taxed. This is called the annual allowance.
If you’ve already drawn some of your retirement savings, your future pension contribution limit may be restricted to the money purchase annual allowance (see below).
How does it work?
The annual allowance is a limit on your pension contributions in a tax year. For tax year 2017/18, this limit is £40,000. If you’ve already taken some of your retirement savings, your future pension contribution limit may be restricted to the money purchase annual allowance (see below). If you have earnings above £150,000, the tapered annual allowance could apply (see below). Please speak to your adviser if you think these limits apply to you.
Can I carry forward any unused annual allowance?
It may be possible to reduce or completely avoid the annual allowance charge using carry forward. Carry forward allows unused annual allowance in the previous three tax years to be carried forward and added to the annual allowance for the current tax year end.
What is it?
The money purchase annual allowance (MPAA) is lower than the annual allowance and it may apply if you choose to flexibly access your retirement savings from 6 April 2015.
The Government has introduced the MPAA to make sure there’s no room to abuse the tax relief that can be claimed on any new pension contributions by those who have taken some or all of their retirement savings.
How does it work?
If you choose to access your retirement savings flexibly, certain payments will trigger the MPAA. This means your annual allowance for contributions into defined contribution arrangements would be reduced from £40,000 to £10,000 a year.
What triggers the MPAA?
- If you choose to take an income from a flexi-access drawdown plan set up from 6 April 2015.
- Taking a full or partial cash lump sum withdrawal from your plan.
- Taking an income above the maximum limit from an existing capped drawdown plan.
- Receiving a one-off lump sum if you’re entitled to primary protection with protected tax-free cash of more than £375,000.
What won’t trigger the MPAA?
- Taking your 25% tax-free cash.
- Cashing in small pots.
- Taking an income from a capped income drawdown plan that’s within the maximum limits.
- Additional designation from an existing capped income drawdown plan.
- Buying a lifetime annuity.
What do I need to do if the MPAA is triggered?
We’ll let you know within 31 days of the MPAA being triggered.
You’ll have 91 days to inform all pension schemes you’re contributing into that the MPAA has been triggered. If you join any new pension plans, you’ll also have a responsibility to let them know.
What about defined benefit schemes?
If you’re a member of a defined benefits scheme and you’ve triggered the MPAA, the £40,000 annual allowance still applies to your total contributions/accrual. However, within your total £40,000 annual allowance, the maximum you can pay into any defined contribution plans will be £10,000 before a tax charge applies.
The 2017 Spring Budget did include plans to reduce the MPAA to £4,000, however, this was not included in the Finance Bill/Act 2017. It is not clear if/when the reduction will be reinstated.
We recommend you speak to a financial adviser if you think this applies to you.
There's a limit to the amount you can have built up in any pension plan when you start taking your retirement benefits. It's set by the Government and it's called the lifetime allowance.
The lifetime allowance for 2017/18 is £1,000,000. If you exceed this limit, you may be subject to a lifetime allowance charge.