Taking money from your pension plan is a big decision and when and how you do it can have significant impact on how long your savings will last.
So, when the time comes, it’s important you feel confident you understand your options and how your decisions might affect the tax you pay and how long your money will last.
Knowledge is power as the old saying goes, so get familiar with your options before you plan to take anything from your pension savings.
To help you make the most of your pension savings, ensure you have an up-to-date value of your pension plan (or plans) from your provider and find out what features, benefits and charges are included. You can often do it online.
You can normally start to take money from your pension savings from age 55 (rising to age 57 in 2028) if you choose to.
You don’t have to take it and the longer you leave it invested, the more it has a chance to keep growing. Remember a pension plan is an investment and its value can go down as well as up and you could get back less than was paid in.
You also don’t have to take it all at once, it can be tax efficient to keep your savings in your pension plan, and only take what you need in any one tax year.
With some pension plans you can access your money as and when you need it to ease yourself into retirement. This can include using it to top up your salary while you’re still working, although it will be subject to income tax.
If you’re planning to take money and keep saving into your pension plan tax efficiently, there are extra things to think about.
Once you start accessing any taxable income from your pension savings, the amount that can be paid into any of your pension plans, not just those with Standard Life, will be limited to £4,000 per tax year. This includes any contributions your employer makes on your behalf and is known as the Money Purchase Annual Allowance.
Pension plans are also about meeting your long-term needs, so if your current pension plan
isn’t offering what you want for your retirement goals, you might want to consider moving your pension savings to another pension plan or provider.
If you would be giving up any valuable guarantees or benefits on your current plan, for example a Guaranteed Annuity Rate, this may not be the right thing to do. So speak to your pension provider or take advice before you take any action.
There are several to choose from, but you need to consider your goals and how long you might need your savings to last. The main options usually available to you are:
The Money Advice Service can help you understand your options.
You might not realise this, but you don’t have to access your pension savings with your existing provider(s).
Once you know how much is saved and what features and charges you have in your pension plan, as well as how you’re planning to use it, you should shop around to get the best deal for you, which could mean better benefits.
Consider choosing a provider that gives you all the options you need for your options in retirement and your money on your death.
Check out comparison websites, contact companies directly and, if you’re aged 50 or over, you could use Pension Wise before making your decision. You can usually get some guidance over the phone or face-to-face.
Because a pension plan isn’t like a bank account giving you instant access, it makes sense to plan ahead at least a few months before you want to start taking your money. You can spend that time getting to know your options too.
Check out your chosen provider’s website and set yourself up online if you can – it is usually straightforward to do.
You can normally take 25% of your pot free of income tax. Some pension plans have different levels of tax-free cash, so check with your pension provider how much you’re entitled to.
You can either take your tax free cash in one go, or take it out across different tax years to help you manage your income tax efficiently each year.
Not all pension plans let you do this – with some you have to take your tax-free cash all at once.
Or don’t take any cash at all if you don’t need it and leave it invested with the opportunity to keep growing.
Whichever way you plan to take your pension money, you need to think about tax, as there may be income tax to pay on any money you take out over your tax-free cash.
Take all your money at once and you could pay more income tax than you need to. Take it over a number of years and it is likely to be more tax efficient which means you get to keep more of your money.
It’s important to note that laws and tax rules may change in the future and your own personal circumstances and where you live in the UK will have an impact on tax.
You can normally take money from your pension pot yourself online – just log in if you have a Standard Life pension plan. Or in some circumstances you may want or need to call.
If you’re not registered for online services, you can sign up – again it makes sense to do this in good time.
If you plan to take your pension money as a series of lump sums or flexibly as an income, the remaining money in your pension pot stays invested – normally in funds.
You need to make investment choices, as the rest of your pension money is invested in funds that you choose. And even after you start taking your pension money, it’s important to regularly review your investments to make sure they’re still right for you and your goals.
1. You need your money to last
Whatever you decide to do, you need to think about how long you need your pension savings to last.
Our pension calculator can help you work out how much you might need in retirement.
2. Be scam smart
When it comes to any savings, if you come across any ‘too-good-to-be-true’ investment opportunities, they are very likely to be a scam.
Always check with the Financial Conduct Authority (FCA) to see if a company or individual is authorised to provide investments and be very wary of high-pressure sales tactics and unregulated ‘opportunities’ – such as diamonds, land, forests, and real estate, particularly overseas. You aren’t protected by the FCA as many people have found out to their cost. The Money Advice Service can also help with guidance.
3. Consider your legacy: Your Will and your pension savings
Money in your pension plan can be passed on more tax efficiently than ever, depending on what type of pension plan you have, who you want to leave your pension savings to and the age you die.
Your Will doesn’t normally cover your pension savings – so it’s important to tell your pension provider who you want your money to go to on your death. You can do this by nominating your beneficiaries and keeping them up to date. You can nominate the people – or charities – you’d like to get your pension savings, either online or by contacting your provider. They’ll take your wishes into account.
Leaving money to loved ones can be a complex area, so make sure you understand how to pass your wealth on tax efficiently to whomever you want.
Who you leave your money to also has tax implications and it makes sense to take advice on this.There’s likely to be a charge for this.
4. Think about the impact of any decision on means-tested state benefits
Any benefits you currently receive can be reduced or stopped entirely if you start taking any money from your pension savings. It could also affect any future benefits you may be entitled to, such as help with long-term care.
If you think this could affect you then check with the Department for Work and Pensions.
5. Get to know your State Pension
Knowing what you could get in the future can help you plan.
Find out more on what you could get and when, here.
6. Find any lost pension plans
If you think you’ve lost one, all you need is the name of your employer or pension provider to get started. If you don’t have those, you can use the Government’s online Pension Tracing Service.
If you’re unsure what’s right for you, consider getting financial advice. It could make a big difference to your money and your peace of mind.
Although there will likely be a cost, it could save you money in the long run.
If you don’t have an adviser, you can find one in your area at unbiased.co.uk .
This article shouldn’t be taken as financial advice and is based on our understanding in May 2021.
Standard Life accepts no responsibility for information contained on external websites. This is for general information only.