Pension tools to shape your future

Nowadays, when going to the cinema, do you notice how many different choices there are to make before we can even view the film?

Do we want Premier Seating?

Do we want the popcorn and drink deal?

Do we want to go extra large?

There’s a lot to think about and the same can be said when considering how we can take money from our pension savings.

When you reach age 55, or age 57 from 6th April 2028, you are free to take the money you have saved from your defined contribution pension.

There are 3 main ways to access your money:

Option 1:

If you prefer the security of a guaranteed income for life, you can use your savings to buy an insurance policy known as an annuity. This income may be smaller than with the other options, but you won’t have to worry about running out of money in the future. Just be aware that once you’ve bought an annuity you can’t change your mind.

Option 2:

You can take money from your pension as and when you want it and the money you leave in your pot stays invested - as it was when you were paying into your pension. Charges will still be taken but leaving it invested may give it more chance to grow. There is a risk that the value of your investments could go down and you may not get back what has been put in. Remember, there is no guarantee that the money will last a lifetime with this option.

Option 3:

You can take all of your money out as cash but as tempting as that is, you’ll need to think carefully about any tax implications and how long your savings will last. Taking large sums of cash could push you into a higher income tax bracket and could restrict the amount that can be paid into your pension going forward. And you could run out of money in the future if you don’t budget carefully.

It is possible to mix the different options too if you want to. You can normally take 25% from your savings tax-free, so you could pay off any debts, travel, or just treat yourself to the small things in life.

The remaining 75% of the savings will be used to provide you with an income, which will be taxed like your salary when you receive it. You don't have to receive a taxed income immediately - you can leave the money available to provide you with a drawdown income later - and you can also decide later to buy an annuity using the money you have held in drawdown until then.

You don’t have to do anything with your savings either. You can leave your pension exactly where it is.

Whatever choice you make, it’s worth reviewing the options carefully and getting advice. You should also shop around and compare the different levels of income you could get from different providers.

Here at Aviva, we have dedicated staff available to talk you through your options, so whatever route you choose, we can help you set the scene for the retirement you want.

If you want more help thinking about pensions and retirement, a good place to begin in MoneyHelper, the government-backed free guidance service.

If you are aged 50 or over you can use the Pension Wise service, from MoneyHelper, online or by phone on 0800 138 3944.

They offer a free face to face or telephone guidance session. They won’t tell you what you should do, but they’ll provide you with information to help you understand your options.

For more tailored advice, you should speak to a financial adviser. Bear in mind they may charge a fee for this advice.

If you don’t have an adviser, you can find an up-to-date list of regulated advisers at MoneyHelper: 

www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/find-a-retirement-adviser

You can access MoneyHelper online at: www.moneyhelper.org.uk  or by phone on 0800 011 3797

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aviva.co.uk/retirement/pensions