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From age 55, you can take up to 25% of your pension savings as tax-free cash if you want to. You can take the rest of your pension savings as a regular income (also known as an annuity).
What is an annuity?
You can use your pension savings to buy a guaranteed income for life, also known as an annuity. You can choose different features and options to protect your income for your family if something happens to you. You can take 25% of your pension savings as tax-free cash first if you want to. The maximum tax-free cash is subject to the Lump Sum Allowance of £268,275. This may be higher if you have pension protection.
Things to think about
Generally, a regular income could be right for you if you’re looking to have a guaranteed income for life and are looking for security over flexibility.
With this option, you’ll have to make one decision at the point you take your money, and from then you’ll receive a regular income for the rest of your life.
Any income you take from your pension savings will be taxed in the normal way, like a salary would be. If you’re receiving other income at the same time, it may move into a higher tax bracket.
Here are three things to ask yourself when you’re making your decision:
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What happens to my income when I die?
You can normally choose for the regular payments to go to a beneficiary on your death, or a protected lump sum to go to them instead (minus the payments that have already been made). You can choose one of these options when you buy your regular income.
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What are my priorities in retirement?
Depending on what you want to do in retirement, you may want stability over flexibility. The amount you get from your pension savings as an annuity is a guaranteed amount.
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Have I considered all my options?
An annuity is a financial product, so shopping around for the best deal is always worth doing. You can do that on your own, or with the help of a financial adviser