It is possible to take cash and an income from a pension fund at any time after age 55 and you don’t have to stop work to do so. (Skip straight to Cash from Pension)
You can usually take an income in one of three ways:
- Flexi Access Drawdown – your money remains invested and you take an income directly from the fund, thus your pension fund remains intact, albeit without the amount you have withdrawn of course.
- Phased Retirement and Uncrystallised Fund Pension Lump Sum (UFPLS) – This is very similar to Drawdown, but instead the plan is split into many segments and each segment can be treated as a separate policy. This allows you to access each layer as you need too, thus phasing in retirement over time. It also frees up an element of the cash lump sum with each segment that is drawn which can be tax efficient if you use the cash lump sum to supplement your income, because the tax free cash is just that – its tax free, but the income element of a pension is taxable.
- Annuity – you can use your pension plan to buy a guaranteed income for life. It is not as flexible as the two former options but does give the security that your pension fund won’t run out during your lifetime. You should shop around for the best annuity rates available on the open market. (Skip straight to: Shop for Annuity). To learn more about annuities go to: What is an Annuity.
You are no longer forced to stop work when you reach your normal retirement age. However, you might like to reduce your working hours. If this is acceptable to your employer then you could consider topping up your reduced income. It may be possible to phase in your pension income over time as you gradually reduce your working hours in future years. This flexibility means you can enjoy working with your colleagues into retirement putting in the hours you want for as long as you want to or are able to do so. (Of course, you will require your employer’s co-operation and consent each time you wish to change your working hours, but a pension can be tailored to suit your requirements and needs.)
Your pension income will be taxed via the PAYE system, so you may want to consider how much pension income you draw if you are still working. The pension income can be arranged on a flexible basis so that you can manage the income alongside your earned income and tailored to keep your total income below the 40% tax threshold making it tax efficient.
The Pension House will go through the options with you and guide you to the most suitable choice for you that meet your needs. Contact Us