A pension is a very tax efficient way of saving. The government wants to incentivise people to save for their futures and so they actually offer some tax savings to help motivate you to pay into your pension.
Once you reach 55, there are a number of options available to you.
Firstly, you can leave your pot invested if you’re not ready to start taking any income from your pension. You can also continue to pay into your pension. There are limits, however, if you do decide to take any income from one or more of your personal pensions. This is dependent on the type of policy, and how you withdraw the money.
It could be worth seeking some financial advice if you wish to carry on paying in, after taking a payment from any other pension arrangements you have.
There are several ways you can access your pension savings when you decide to reduce your working hours or retire. You’re able to withdraw the first 25% of your pot without paying tax on it. The other 75% is liable for tax, but the amount deducted will depend on your circumstances at the time. You could take the whole amount as a cash lump sum, take several payments in chunks when you want to or set up regular payments. You could do this either by setting up a flexible drawdown arrangement where some or most of your money is still invested or by buying something called an annuity which will give you a set amount of income for a specific amount of time or for life.
To learn more about your retirement options, head here.
We recommend that you speak with Pension Wise (part of the Money and Pensions Service) to help you understand the tax implications of your options as well as any impact they may have on your entitlement to any state benefits you might be eligible for. You might also want to speak to a financial adviser who can offer you tailored advice after reviewing your finances and recommend the best way to plan for your retirement. You can find one in your local area at unbiased.co.uk. Advisers usually charge for their services.