Making choices about the next step

Taking a step into a different life is always a mix of excitement and fear. And retirement is no different. There are many choices to make – not least what you’ll want to do with your time and how you want to receive your savings.

The days of only being able to use your retirement savings to buy an annuity are gone – you now have more options for how you take your savings. 

Your savings, your choice

How you choose to take your savings is entirely up to you, and you can choose from:

  1. Buying a guaranteed income (an ‘annuity’)
  2. Buying a guaranteed income and cash lump sum
  3. Flexible income – the ‘drawdown’ option
  4. All as cash - in an Uncrystallised Funds Pension Lump Sum (UFPLS)

Take a look at our comparison table to see the differences between your options.

1. Buying a guaranteed income (annuity)

This will provide you with an income during retirement and, if you choose, an income for your spouse and other dependants after your death.

The amount of income your Account will buy will depend on:

  • Whether you choose a pension that increases every year – this will help your pension to keep up with inflation but it does mean that it will start at a lower level than one which doesn’t increase each year
  • If you wish to add a spouse and/or dependants death in retirement pension – your dependant will receive a pension if you die before them but your own pension will be lower
  • If you choose a guaranteed period for your pension – your pension will be paid for the rest of your life but if you choose a guaranteed period, for example five years, and die within that period, your pension will continue to be paid to your dependants until the end of that period rather than stopping with your death

2. A guaranteed income and cash

You can take 25% of your Account as a tax-free cash lump sum (called a Pension  Commencement Lump Sum) before you buy an annuity.  This means your regular annual income will be less than if you hadn’t taken out a lump sum but you may find the cash helpful depending on your own personal circumstances

3. Flexible income – the drawdown option

With the ‘drawdown’ option, you would transfer your retirement savings out of the Plan and move your money to a third party provider who specialises in Income Drawdown plans. You would then take income from your savings as and when you need it. Don’t forget – you can take 25% of your retirement savings tax-free.  You can either take 25% of your full pot as a tax-free amount or you could take 25% of each withdrawal as a tax-free amount until you've reached your maximum tax-free cash allowance.  With this option it’s important to keep your investment choices under regular review.

4. All as cash

You do have the option to take some or all of your retirement savings as cash. This is called an Uncrystallised Funds Pension Lump Sum. 25% of this would be tax free and the rest would be taxed at your normal Income Tax level.  

What happens at retirement?

The Plan Administrator will contact you around six months before your Selected Retirement Age to check you still plan to take your retirement savings at that time.  They will then provide you with an illustrative pension quote together with details of the retirement process. This will set out the choices you have for how you want to use your retirement savings.

You may want to get independent financial advice to help you choose the right option for you.  The Company will pay up to £600 for independent financial advice (as long as you've been a member for 5 years or more and as long as your adviser is regulated by the Financial Conduct Authority).

If you choose the annuity option, your details will be passed on to Hargreaves Lansdown about three weeks before you’re due to retire. Hargreaves Lansdowne are an independent financial adviser appointed by the Trustee to provide retirement quotes to members.  They will research the market and provide you with a quotation for buying an annuity. The Trustee has negotiated a special rate flat fee (currently £296 plus VAT) for members of the Plan for this service which will be deducted from your Account unless you're eligible for the Company contribution towards financial advice (see above).  You can also go to Hargreaves Lansdowne for financial advice about all your options at retirement.

Find out more about the retirement process here.

Tackling tax

Did you know that no matter how you take your pension up to 25% of it can be taken tax free? After that, the remaining income you receive will be treated as regular income (as if you were earning it) when it comes to Income Tax. If you’re taking your pension at the same time as continuing to work, or you do some part-time work once you’ve retired, you will need to be careful about the extra income tipping you into a higher tax bracket.

You don’t pay any National Insurance contributions on your pension.