If you have a money purchase pension, you are legally entitled to the money in your pension pot from the age of 55. You can draw out 25 per cent of the total amount tax-free, with the rest taxed at your current rate of income tax.
Before pension freedom was introduced in April 2015, most people at retirement had only one realistic option, which was to buy an annuity. Now there is much more scope for choosing how you want to spend your pension – but also a greater risk of getting it wrong.
What does it mean for me?
Pension freedom means it is up to you to make sure your pension savings last as long as you need them to. Typically this could be between 20 and 30 years, or even longer, so even if you have a sizeable pension pot it could be a real challenge. This is why it’s so important to seek independent financial advice.
Where can I receive free guidance on my pension?
Anyone in a money purchase (i.e. defined contribution) scheme is entitled to free guidance on their options as they approach retirement. This service is called Pension Wise. It can give you a broad overview of your options at retirement, but is not authorised to make any recommendations or dispense formal advice. Most people will find that such a limited consultation is not enough for them to make a confident choice about what to do.
Do I still need to seek financial advice?
Before you make any decisions about how you use your pension, you should speak to a whole-of-market adviser to ensure you are getting the right advice for your particular circumstances.
Seeking independent advice can lead to a significant uplift in your retirement income and better outcomes overall for you and your beneficiaries. Retirement has always been one of the biggest financial decisions you will make in your lifetime, and it just became much more complicated - but also a lot more exciting.
Find a whole of market financial adviser to discuss your retirement options.
Download our retirement checklist to help you ask the right questions when you meet your financial adviser.