However, you’ll only be able to make contributions up to a reduced annual allowance, known as the Money Purchase Annual Allowance. It’s generally possible to continue contributing to your defined contribution pension after you’ve started to access it and used the 25% tax-free allowance. For example, you could move money from your pension gradually into a flexible-access drawdown, taking 25% of the money you move each time tax-free. You can decide to use a combination of the options available and to take money as and when it suits your particular circumstances. What’s great about the flexible pension rules is that you don’t have to just choose one way to take your pension. It’s important to know that if you decide on this option you could end up paying a lot of tax and could potentially, depending on what you do with the money, not have a regular income for later in life. Generally, the first 25% will be tax free and the remaining will taxed according to your income band and tax rate. This option requires you to close your whole pension. You’re able to take everything in your pension pot as cash all at once. In the industry, this is known as uncrystallised funds pension lump sums. For each withdrawal, the first 25% is tax-free and the rest would count as income for tax purposes. You could choose to leave your pension pot where it is, to continue to grow tax-free, and to take out smaller cash amounts as and when you need. There are many different types of annuity with different associated charges, so it’s important that you shop around for the deal that best suits your personal needs and circumstances. You can also choose to provide income for a beneficiary or dependent when you die. The income you receive is taxable.Īn annuity can provide income security as you know exactly what you’ll be getting. The amount you get will depend on a number of factors including the size of your pension pot, your age, your gender and some health considerations, for example if you are a smoker. If you buy an annuity, you will receive up to 25% of your pension tax-free, and then the rest of your pot will be used to provide you with a regular income. If you hold a personal pension with Nutmeg and you’re approaching 55, you’ll receive an information pack explaining all the details and showing you how to set up a drawdown if you want one.Īn annuity is a guaranteed income for life, or for a specified period of time. Nutmeg offers drawdown in partnership with our pension administrator Hornbuckle. As with all investing, the value of your investments could go down as well as up, and you may get back less than you put in. There may also be a number of associated fees and charges associated with drawdown that you need to be aware of. But remember, any income or further withdrawals over the original tax-free 25% are taxable at your rate of income tax. While it doesn’t offer the option of a guaranteed income, flexible-access drawdown can be used to provide a regular adjustable income. You can choose to reinvest your pension in funds that suit your retirement objectives, attitude to risk, and amount of income that you want. With this option, you can take up to 25% of your pension tax-free, for example as a cash lump sum, and then reinvest the remaining amount of your pension. When you start to take money from your pension, you could choose to: have flexible-access drawdown, buy an annuity, take small lump sums as cash, take the whole pension as cash, or combine one or more of these options.įlexible-access drawdown allows you to have control over your pension income and to make withdrawals as and when you need to. How you decide to take your tax-free amount, will determine if it is a one-off or per tax year. You can either take the 25% tax-free amount as a cash lump sum, or in small chunks, depending on what you want to do with the rest of your pension. If you begin to take money from your pension, you’re able to take the first 25% of your pension tax free, and you then pay income tax on the remaining 75%. You can combine or use the different options to suit you and your retirement goals and needs. If you have a defined contribution pension, you have a few options for how you can use the money in your pot. Withdrawing from a defined contribution pension
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