Pension Income
Finding the right pension income to suit you as an individual is important, different types of income will suit different people.
From fund to income: What are my options?
There are two main options for generating an income from your hard-earned pot, these are:
The option best suited to you will depend on your own personal circumstances.
Taking a income from an annuity:
Taking an annuity is probably the most common way of converting your pension fund into a regular income. An annuity is an insurance product where in return for a lump sum an annuity provider will pay you an agreed regular income, often for the rest of your life. The amount you receive will depend on a number of factors which may influence the likely length of your lifespan.
Annuities are available in many different forms, shopping around can help you get the best deal for your needs.
Converting your pension into an income using drawdown:
Income drawdown allows you to take an income from your pension fund while it remains invested. There are two main types of drawdown, capped drawdown and flexible drawdown.
- Capped drawdown- You can choose to take up to 100% of the limit set for your age by the Government Actuary's Department, or you may choose to take no income.
- Flexible drawdown- There is no limit to the amount that you may take as an income but you must meet the government minimum income requirement (MIR), which currently stands at £20,000pa. This income may come from alternative pension arrangements.
You are no longer required to buy an annuity by the time you reached 75, and as a result of this Secured Pension Funds and Alternatively Secured Pensions are being phased out. There is also no longer an age limit on the age at which you may take a tax-free lump sum.
If you're a member of an occupational company pension scheme, you no longer have to leave your job to draw your lump sum and a pension. You may also be able to draw all or some of your lump sum and pension while still working full or part-time for the same employer, depending on your pension scheme's rules.
The minimum age at which you may take your company or personal pension is now 55. However, you may still be able to take your pension before age 55 in certain circumstances, for example if you are unable to work due to ill-health.
Between 2010 and 2020 the minimum age at which women will be able to get their State Pension will gradually rise from 60 to 66. State Pension age will also increase for both men and women from age 65 to 68 between 2024 and 2046.
For more information on pension income or retirement planning speak to the independent pension advice team from one our partner firms for a no obligation consultation.
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