03 May 2022
Categories:Pensions & RetirementPensions Explained: your questions answered
Find the answers to some frequently asked questions about pensions.
What is a pension drawdown?
Pension drawdown is a way of taking money from your pension early while keeping some of it invested. You can take out up to 25% of this money tax-free or as a regular income. Our version of pension drawdown is called Income Release.
It’s important to note that pension drawdown only applies to defined contribution pensions.
Video transcript
At the moment, from age 55, you can enjoy flexible access to your pension savings. This is increasing to age 57 from the 6th of April 2028.
You can set up a regular income or simply take some cash whenever you need it. The rest of your money will stay invested in your plan and aim to grow.
Usually, the first 25% of any money you take out of your plan will be paid tax free.
You can choose to take all your tax-free cash in one go or spread it out over a series of smaller payments.
When you die, any savings you have left can be passed on to your loved ones.
Things to watch out for:
With flexible access, there's a risk your money could run out earlier than you'd like, so you'll need to manage your income carefully.
If at any time you need more certainty you can always choose to buy a regular, secure income that'll be paid for the rest of your life.
To find out more about your retirement options, talk to your financial adviser, or visit royallondon.com/retirement
What are the benefits of Income Release?
Fast payment
We’ll pay tax-free cash within five working days of receiving all required information.
Flexible pension savings
Whatever you leave in your plan stays invested, meaning it has the potential to grow.
Money for loved ones
Leave your pensions savings to your loved ones when you pass away.
How does Income Release work?
With Income Release, as with many pension drawdown products, you take your money two ways. This flexibility is why many people choose it as a way of accessing their pension early.
You set an amount to receive as regular income. You can change this amount from year-to-year depending on how much you need.
You can also make cash withdrawals as and when you need the money. You can withdraw up to 25% of your pension savings tax-free.
Income Release Account
This part of your plan pays out the tax-free cash and any regular income payments you've selected.
With flexible access, your income isn't guaranteed to last forever. So if you take out too much money, live longer than expected or if your investments don't perform as well as you'd hoped, you could run out of money before you die.
Savings Account
Any pension savings you don’t use to provide taxfree cash and income will stay in your Savings Account.
You can continue to save for your future by making contributions into your Savings Account. Of course, while your pension savings could grow, their value can also go down. This means you could get back less than you started with.
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Are you happy to keep your money invested?
There are no guarantees your investments will grow. If they perform poorly, you could get back less than you started with.
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Are you prepared to review your plan?
You’ll have to adjust how you take money if there's a risk your savings will run out too soon.
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Are you willing to lose certain state benefits?
The amount of income and/or tax-free cash you take from your pension savings could affect your entitlement to some state benefits.
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Could you run out of money?
You could run out of money if you live longer than expected or your investments don't perform as well as you'd hoped.
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Are you willing to restrict saving into other pension plans?
For pension drawdowns, the government will tax you on savings over £10,000 into other money purchase pension arrangements.
Steps before taking Income Release
If you’ve decided Income Release is right for you, take these steps to start the process.
Additional support
Find the support you need
Find a financial adviser
We strongly recommend talking about your retirement options with a professional financial adviser.
Pension Wise
Pension Wise is a government service from MoneyHelper that offers free, impartial pensions guidance.
Get in touch
Have a question or need some support? Our customer service team are here to help.
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