What you need to know now

When you decide to move your pension savings into drawdown, there are three key things you need to know before you go any further in the process.

Make sure you read these carefully as some of them may have an impact on the decision you make next.

If you haven’t taken guidance or advice and you’re still feeling unsure about making a decision, you still have time to speak to an financial adviser or get some additional help with making your choice. Scottish Widows is unable to provide you with guidance or advice on your decision.

The 3 things you need to know now:

1. How much of your pension savings you are moving into drawdown

   The investment choice you’re making now is for what remains in your pension savings pot after you have taken any tax-free cash (if you want to).

   Make sure you know how much that is before you go any further, as it will affect the decisions you make and the outcomes you’re aiming for.

   Remember, you can only normally take up to 25% of your pension savings as tax-free cash, up to the Lump Sum Allowance. The amount you take into drawdown must be at least three times the amount of the tax-free cash lump sum you want to take.

2. Your Annual Allowance will change

   If you choose to enter drawdown – with or without taking your tax-free cash first – your annual allowance will reduce from £60,000 to £10,000 at the time that you first make a withdrawal from your drawdown pot. That means, if you wish to continue paying into a pension pot and building up your pension savings (elsewhere or with Embark), you can only pay in £10,000 each tax year without incurring a tax charge (unless you have already taken benefits through Capped Drawdown).

3. Your tax-free cash will be checked against the Lump Sum Allowance 

   Taking a tax-free lump sum will trigger a Relevant Benefit Crystallisation Event. This is where the tax-free lump sum is checked to ensure that all tax-free lump sums taken from your pension plans do not exceed the Lump Sum Allowance of £268,275. This allowance may be higher if you have pension protection. 

   You can ask us to confirm this, and you can find out more about the process on the Government’s tax and pensions page.

   Find out more about the Lump Sum Allowance and Lump Sum and Death Benefit Allowance.