What are the different ways you can use to access your pension? The Daily Mail’s financial website has a useful overview of the different options available for releasing your money. They mention that you can use the PensionWise service, but many people would suggest that you should also consult a suitably qualified IFA (Independent Financial Advisor).
ThisIsMoney outlines the main options (the following is a brief summary of their article) –
“1. Choose not to take your pension immediately
You don’t have to draw your pension immediately when you turn 55 and an increasing number of people choose not to – especially if they have decided to continue to work…
2. The 25 per cent rule
Everyone is entitled to take up to 25 per cent of their pension savings out of their pot tax-free. It’s not compulsory to take this allowance but once you have, you’ll pay income tax on whatever else you take out.
3. Guarantee your income
Lots of people decide they want the peace of mind offered by a guaranteed income for the rest of their lives. If this is for you, then you can use all or some of your pension savings to purchase an annuity, which will provide you with a guaranteed income until you die….
4. Access your cash when you choose
This option is also known as ‘flexi-access drawdown’ and allows you to withdraw your savings as you choose… People who choose this option can take advantage of the 25 per cent tax-free lump sum allowance and then reinvest the remaining 75 per cent of their pension savings into a range of investments outside of their pension pot. This is not compulsory however…
5. Cash withdrawals
You can leave your pension savings in your pot where they have the ability to grow tax-free and draw out cash as and when you need it… With this option, 25 per cent of each withdrawal you take is tax-free and then you’ll need to pay income tax on the other 75 per cent…
6. Release your entire pot
Following the pension freedoms, it’s now possible to take all of your pension savings out of a defined contribution pension after you turn 55… The first 25 per cent you take is tax-free but the remainder will be taxed at whatever rate you pay income tax…”