What should I do with my pension?

Pension choicesSince April 2015, we have much more freedom about how we spend our pensions. But now that there’s so much choice, which option is best?

The old way for most people was to buy an annuity, but we are now finding that many wish to avoid this option, almost on principle. So should you take full withdrawal, flexi-access drawdown, UFPLS(?!), an enhanced annuity, or what?

Your decision should be based on what you need from your pension.

  • Do you need your pension to provide an income you can live on?
  • Do you already have enough income from other sources, but need a lump sum, for example to repay debt?
  • Do you need an income for a short period, perhaps just until your state or company pension kicks in?
  • Do you not really need your pension at all, but like the idea of being able to use it to provide for dependants after your death?

These and more can all be accommodated under the new freedoms, and the right options can work very well.

However, if you get it wrong, you could run out of money, or end up giving too much to the taxman.

Most people know you can now take some of your pension as a tax-free sum, but they don’t always realise they may end up paying up to 45% tax when they take the rest. Even if they spread it over a couple of tax years, it could result in a huge overpayment of tax. Although this can sometimes be recovered later, it can be a shock when you initially receive far less than you’d planned.

Finally, not all providers accommodate all the options within existing schemes. You may need to transfer to another scheme to access the option that’s best for you.

An independent financial adviser can work with you to help find which option (or combination of options) is best for you. Our aim is to minimise tax at the same time. We will simplify the options, educating you about what is available, and making your choices easier.

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

Levels, bases of and relief from taxation may be subject to change, and their value depends on the individual circumstances of the investor.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action


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