For many, pensions can be a somewhat confusing concept. It is, therefore, important that you get as much clarity as possible, especially when approaching retirement. Finance experts Portafina have put together useful advice for those aged around fifty-five and thinking about pulling from their pension pot.
Your Options
Firstly, if you want to know what you can do with your pension at fifty-five, you need to know your options. You could do a number of things such as taking out tax-free cash, taking your entire pot in one go, buying an annuity and much more. If you keep reading you’ll find out more about your options in detail.
Pension Release
The first option to explore is pension release. This is where you take money from your pension early whether you have a personal or workplace scheme. In the event that you have a final salary scheme, it would need to be transferred to a personal pension before money can be taken out. However, this could mean that you’re giving up lifetime income.
Tax-Free Cash
Taking out cash is another option. For some personal and workplace schemes, you won’t be able to take more than 25%, however. Taking tax-free cash could also affect the amount of guaranteed income you get from your final salary pensions so it’s best to follow the advice of a financial advisor.
Annuity
If you didn’t know, you could sell your pension pot to an insurance company in exchange for a consistent income for life. This is what is known as buying an annuity and it’s a way of creating more security for yourself. Seeing as they can be inflexible and rates have fallen over the past ten years, they are becoming less popular.
Pension Drawdown
Some people prefer to begin taking a monthly income, and this is known as ‘pension drawdown’. They can be taken in regular payments or in several large sums.
Single Payment
If for any reason, you need all of your money at once, you could take a single payment or one large sum as long as you’re aged fifty-five. It may be better to keep at least a fraction of your savings invested, but your circumstances will determine the best thing to do.
Taking Pensions Early
You should know that taking pensions early although possible, isn’t always the best option. When you do, it could mean having less to live on in the future so getting financial advice is key.
However, if you leave your pension as it is, and wait until you’re aged sixty or sixty-five, your pot could end up being significantly larger. Just regularly review your pot and be sure that your savings are invested in the best ways.
Anyone who wants to take out a pension before the age of fifty-five should know it isn’t generally possible unless you’re facing a critical illness. Beware of companies or individuals who say you can as it could be a scam.
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