Taking income - your options

After years of saving into your pension pot and you’ve decided that you want to retire, you’ll need to decide what you want to do with the money. You can normally start taking your income from age 55. There are two main options for you to choose from:

• An annuity – where you use your pension pot to buy a guaranteed income that will be paid to you for the rest of your life. You can still take your tax-free lump sum and use the rest to buy an annuity.

• Income drawdown – the main difference to an annuity is that the money remains invested and you simply take a pension income directly from it. This is the most flexible way to take your pension income. Again, you can still normally take up to 25% of your pot as a tax-free lump sum.

All of the annuity information in this section is about conventional annuities – there are other types of annuities available.

Not sure? Call Standard Life Direct 0845 279 8810 and we’ll explain your options. You can also contact your financial adviser.

Standard Life Direct is provided by Standard Life Client Management which advises on, and sells products from, subsidiaries of Standard Life plc and some external providers.

You can normally take up to 25% of your pension pot as a tax-free lump sum.

You use the rest of your funds to buy what is known as an annuity – this will give you a guaranteed income for the rest of your life. Annuities come with lots of options – you can tailor yours to include benefits such as a pension for your spouse or partner if you die.

The income you receive from your annuity will be taxed under the Pay as You Earn (PAYE) system.

Other types of annuity are available. To find out more, simply call Standard Life Direct on 0845 279 8810.

Standard Life Direct is provided by Standard Life Client Management which advises on, and sells products from, subsidiaries of Standard Life plc and some external providers.

Benefits of an annuity

• Guaranteed income – with an annuity you will have a predictable income for life. The amount you receive can depend on a number of things including annuity rates on offer, your age, gender and state of health.
• Flexibility – you can choose options to make your annuity really work for you. These include how often you want your annuity to be paid, arranging for yearly increases to help protect against the effect of inflation or making sure your dependants are provided for after you die (the options available to you will depend on the size of the annuity).
• Affordability – you can buy an annuity with a relatively modest pension pot. However, you’ll generally need around £50,000 for a self invested personal pension (SIPP), to give you an income drawdown plan.

Limitations of an annuity

Once you buy an annuity, you can't usually change it – so you need to make sure you’re comfortable with your choices. For example, buying an annuity early can leave you with a small income for the rest of your life – it’s not right for everyone.

And when you die, the annuity will stop – unless you’ve chosen an option like a pension for your spouse. You also need to take your tax-free lump sum at the same time you buy your annuity.

If you pick an increasing annuity to help protect against the effects of inflation, it may go up or down in any years where inflation is zero or negative.

Your annuity options and how to buy

Buying your annuity
If you feel that an annuity is the right option for you, you have a choice on who you buy your annuity from and the right annuity for you. You can either buy a –

• Standard Life annuity – we’ll provide you with a retirement quote as you near your selected retirement age, and personalise it to suit any options you’ve selected

• An Open Market Option Annuity – you can choose to get a retirement quote and buy an annuity from any other insurance company

If you have pensions with other companies, why not ask us to give you a retirement quote for your annuity? This could mean a better rate on your annuity. Remember that your existing pensions may come with guarantees which you may lose under the open market option.

When deciding who to buy your annuity from it is worth remembering that it is a long term decision and that you need to be comfortable that you’re taking it out with someone you trust. At Standard Life we have been helping people with their financial needs for over 180 years. Not only will you get access to our expertise, you will also benefit from our award winning service.

Need some help deciding?

Give us a call Standard Life Direct 0845 279 8810 and we’ll explain your options to you. Call charges may vary.

Standard Life Direct is provided by Standard Life Client Management which advises on, and sells products from, subsidiaries of Standard Life plc and some external providers.

Income drawdown’s main difference to an annuity is that the money remains invested and you simply take a pension income directly from it. This is the most flexible way to take your pension income.

Benefits of income drawdown

If you want to take the money out of your pension as and when you need it, rather than commit to a set amount that you get with an annuity – flexible income drawdown could be the answer.

This allows you take a flexible income directly from your invested fund, within limits set by HM Revenue & Customs. The income you take will be taxed under the Pay as You Earn (PAYE) system.

You can even withdraw funds and use them as you like – perhaps even to buy an annuity. And if you take just some of your pension as income drawdown, the rest of your funds stay invested – so they have the chance to grow.

When you die, depending on your age, your invested fund can provide an ongoing income for your dependants or a lump sum payment to a number of beneficiaries (or a mixture of both). The income will be taxed under the Pay as You Earn (PAYE) system.

Limitations of income drawdown

Because your money’s still invested, there’s always the risk the value of your investment could go down as well as up. This means that you might get less income than you would with an annuity.

You also generally need to have at least £50,000 in your pension pot to keep on making withdrawals. Your income is limited to the funds available, so you should have regular reviews to ensure you have enough to give you the income you want.
    
Income drawdown isn’t for everyone - speak to an adviser if you think this is the option for you.

Buy Income Drawdown

If you feel that income drawdown is the right option for you, then call Standard Life Direct on 0845 279 8810 or speak to your financial adviser.