- If you choose a flexible income option, your pension savings will only last until all the money has been taken out, however long you live, so you’ll need to make sure you budget carefully.
- There’s no guarantee of the future value of your pension savings ‒ they could continue to grow, and any further growth will be free of tax, but the value could go down as well as up.
- As with the full cash option, you’ll need to make sure that you’re not missing out on any special features that your pension policy offers. For example if your pension has a guaranteed annuity rate (GAR), it could give you a higher level of income from an annuity, where the market annuity rate is lower than the guaranteed rate on your policy. You should check with your provider whether you have one and how it works.
- There may be an early exit reduction fee such as market value reduction (MVR) on your current policy, so your pension savings may reduce if you take your benefits before your selected retirement date.
- With either of these options, you can still make contributions to your defined contribution. A defined contribution pension scheme is one where the pension amount at retirement depends on the amount of money paid into it, and the investment growth. It is also known as a money purchase scheme. Pension scheme up to your 75th birthday but a £10,000 annual allowance will apply to all contributions. This new rule, introduced in April 2015, is known as the money purchase annual allowance (MPAA). This rule is designed to stop people taking large amounts from a pension and using this to fund further pension savings. However, if you decide on a FAD pension, have only taken the tax free lump sum and have left the rest of your pension (the flexible part) untouched, you can still pay your annual allowance (currently £40,000) into your pension each year and get tax relief on the whole £40,000.
Remember, you should always shop around to make sure you are getting the right flexible income option for you. You may be able to obtain a higher pension income by shopping around. The easiest way to do this is to contact Pension Wise, speak with a financial adviser, use a comparison website or contact providers directly.
We recommend that you obtain free and impartial guidance from Pension Wise, a pension guidance service which has been set up by the Government, or speak to a financial adviser before you make any decisions about your pension savings.