Shaping your retirement
55 and beyond
Once you turn 55, you have several options that are open to you. These are:
- When you take your retirement savings
- How you take your retirement savings
When's the right time?
You can retire or start taking your money from the Plan at any time after age 55 but the earlier you do this, the longer the money needs to last to cover the rest of your life and the less time you have to keep saving into it.
The default pension age for members in this Plan is 65, although this can change in line with automatic enrolment legislation. However, this is just the default retirement age, and you can select a retirement age that suits you (your Selected Retirement Age).
You should also bear in mind that this is likely to be different from your State Pension age. Go to the State Pension page to find out more.
Why does my Selected Retirement Age matter?
Your Selected Retirement Age is used to manage the investment of your funds if you’re in the Lifestyle Option. The Lifestyle Option automatically moves funds over to more secure investments once you’re 15 years away from retirement – that’s why it’s useful to know what age you want to retire. If you’re automatically enrolled into the Plan, your default pension age is 65. However, once you’re a member of the Plan, you can change that if you want to, and select your own retirement age instead. You can do this by using The Money Advice Service's pension modeller to see the impact of changing your retirement age on your savings.
Choosing to retire late
You can carry on working after default pension age, and there are now quite a few options in how you can take your retirement savings if you decide to retire late. Go to the 'Making choices about the next step' page to find out more.
How to take your savings
There are now more ways for you to use your retirement savings and the Plan gives you the following options:
- Buying a guaranteed income (‘annuity’)
- Flexible income – the ‘drawdown’ option
- A guaranteed income and a cash lump sum
Choosing which option you think will suit you in retirement will affect how you invest your savings between now and your planned retirement date. The Lifestyle Option for instance is designed to invest your money for longer and to switch more gradually to less risky investments than if you were planning to buy an annuity. To find out more go to 'Investments as you approach retirement' page.
- Buying a guaranteed income: This means that you can use all of your retirement savings to buy a guaranteed, regular income – either for the rest of your life, or just for a fixed period. This is what you may have heard referred to as an ‘annuity’, and it’s the traditional way of taking your retirement savings. You can use all your Account to do this.
- Flexible income: the drawdown option: With the ‘drawdown’ option, you would transfer your Account into an Income Drawdown plan where it would continue to be invested. You would then take income from your savings as and when you need it. The term ‘drawdown’ just refers to the fact that you’re ‘drawing down’ money from your overall savings pot. Don’t forget – you can take 25% of your retirement savings tax-free, and any money that you do drawdown (above the tax-free amount), will be taxable income. If you’re invested in the Lifestyle Option, this is the outcome your investments are working towards. If it’s not right for you, it’s a good idea to start reviewing your retirement options and making changes to your investments if you need to.
- A guaranteed income and cash: You can take part of your Account as a cash lump sum (called a Pension Commencement Lump Sum) before you buy an annuity. You’ll be advised nearer to retirement about how much this cash amount is (you can take 25% of your Account).
It’s really helpful to know how tax works when it comes to taking your savings.
You can take up to 25% of your savings tax-free.
That means that if you choose an annuity or a drawdown option then the remaining 75% will be taxed as income. That’s why you need to be careful if you start taking payments while you’re still working, because you have to take into account the money you’re drawing down and your salary too. The total amount could put you into a higher tax band, so be mindful of this.
If you decide to take your retirement savings as either flexible income (drawdown) or any other pension savings you may have as cash, your Annual Allowance will reduce to £4,000. This is known as the ‘Money Purchase Annual Allowance’.
This means that if you want to pay in more retirement savings once you’ve accessed some of your money in this way, you will only be able to pay £4,000 in over a tax year. If you pay more than that, you could end up paying a tax charge on the excess, because you no longer receive any tax relief so effectively you pay tax at your normal rate of income tax. Go to the Government website for more information, and make sure you factor this in as you plan for your retirement.
Please go to the Government’s site: https://www.pensionwise.gov.uk/en/pension-pot-options.