Your pension choices at retirement
We are here to help explain your options
What are my pension options?
You have saved hard to build a pension and now you’re approaching retirement you want to make the right choices. You may have several of different pensions – both from employers and personal.
Personal pensions such as SIPPs give you three main options for accessing your pension – pension drawdown, taking lump sums or buying an annuity. A SIPP gives you the freedom to choose one option or mix and match. You don’t have to use all your pension fund in one go, so you can choose one option now for part of your SIPP and leave the rest to decide later – it is flexible.
To help you find the best provider for accessing your pension, it can be a good idea to shop around. If you need any help doing this, the MoneyHelper website provides some useful information.
Pension wise
Pension Wise is a free, impartial government service that offers guidance to anyone approaching retirement. If you want to better understand the retirement options available to you, Pension Wise can be contacted via its website, in person at Citizens Advice or by telephone via MoneyHelper on 0800 138 3944. Visit our Pension Wise page to learn more about Pension Wise and how to use it.
| Tax free cash and pension drawdown | Lump sums or UFPLS | Tax free cash and annuities | |
|---|---|---|---|
| What is it? | You take a tax free lump sum and leave the rest invested in your pension to provide an income, either on a regular basis or take the income as and when you need it | You take lump sums from your pension, which are part tax free and part taxed | You give your pension to an insurance company who pays you a guaranteed income for life |
| Who is it for? | You need cash up front and are comfortable investing the balance so that it provides an income. You understand that investment returns are not guaranteed and that the fund could run out of money | You want to withdraw your pension only as you need it and are comfortable investing the balance. You understand that investment returns are not guaranteed and that the fund could run out of money | You want a guaranteed income for life and are not comfortable taking the risk of investing the pension fund yourself. You understand that you cannot change or cash-in an annuity if your circ*mstances change. |
| Is my income secure? | No | No | Yes |
| How is it taxed? | The initial tax free lump sum is normally 25% of the fund and the income you take from your drawdown fund is taxed as income tax | For each lump sum 25% is tax free and 75% is taxed as income tax | You can normally take 25% of the pension fund tax free and each annuity payment is taxed as income tax |
| Do I control the investments in the pension fund? | Yes. You decide how to invest the pension fund and what income to take | Yes. You decide how to invest the pension fund and what lump sums to take | No |
| What happens when I die? | The remaining fund is paid as a lump sum or income to your beneficiaries | The remaining fund is paid as a lump sum or income to your beneficiaries | The annuity contract sets out the payments that will be made after your death |
| Does AJ Bell offer this option? | Yes - in an AJ Bell SIPP | Yes - in an AJ Bell SIPP | No, but we will pay the tax free cash to you and purchase your chosen annuity |
| Can I invest in an Investment Pathway? | Yes, you can. By choosing an Investment Pathway, you can invest your pot in a fund designed to broadly match your retirement plans. | No | No |
| Get more information | Guide to drawdown Tax free cash Pension drawdownInvestment Pathways | Lump sums | Tax free cash Annuities |
Watch out for pension scams
Whichever pension option you choose, you need to be sure it's your choice. Scammers may target you with false promises and pressure you to access your pension. Be wary if you're contacted by email, phone, text or in person about withdrawing your pension pot.
Find out more about pension fraud
10 point retirement checklist
To help you make those all-important choices about your pension in the run up to your retirement here are 10 things you should consider.
10 actions to take now
