From April 2015, savers will have complete freedom to access their pension funds.
If you’re 55 or older, you’ll have four choices:
One - withdraw all your pension money immediately
Two - take some of the money, as and when you need it
Three - use it to buy yourself an income for your lifetime
Or four simply leave the money where it is. You can make your choices later.
Tax treatment will depend on your personal circumstances and tax rules may change in the future
You’ve got to think about the taxman too. You can usually take 25% of your pension fund tax free. The rest will count as part of your annual income, which you’ll be taxed on at your marginal rate.
As tempting as it might be to withdraw all of your pension fund now, you need to think carefully about how much you’ll need to live on as it may need to last you the rest of your retirement. Once you’ve made a decision, you may have to stick with it.
But that doesn’t have to mean you take nothing from your fund. You might want to take some cash to do some home improvements, or take a holiday.
Or you might find you could save money by taking a cash lump sum to put towards paying off any debts. Remember, any money left in your pension will remain invested and the value could go down as well as up, and you may get back less than has been paid in.
Whatever you decide to do, it’s worth giving some thought to your plans for your pension fund right now.
Otherwise, when the time comes to finally put your retirement plans into action, the wheels might come off.
Pension Wise is a free and impartial service set up by the government for people retiring with defined contribution pensions. It will help you understand what your choices are and how they work.
You can receive Pension Wise guidance online, over the phone or face to face. Visit www.pensionwise.gov.uk for details.
We recommend you seek appropriate guidance or advice to understand your options at retirement