Nearing Retirement

As retirement gets closer, there are a number of choices to be made, and we can help you assess what’s required and come to the right decision for you and your family.

One option is to use your pension fund to buy an annuity – a product that will pay you a regular retirement income for the rest of your life. However, you might also consider flexi-access drawdown, which enables you to take your income directly from your retirement fund.* Before you decide which option is right for you, specialist advice is essential.

Defined contribution pensions

The rules around pension planning changed significantly in 2015, and since then, you are now able to access your defined contribution pension once you are 55 years old. The level of income you can take is unrestricted, although you must pay your marginal income tax rate on any taxable withdrawals. It remains the case that you can still take up to 25% of your pension fund in the form of tax-free cash.

Defined contribution pensions can now be passed to anyone in the event of your death, rather than just being passed to a dependant. If beneficiaries take income from a defined contribution pension, it will be tax-free if death occurs before age 75, or will be paid at the beneficiary’s marginal rate if death occurs after age 75.

‘Income drawdown’ will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value. The level of income you take will need to be reviewed if the fund becomes too small – this is more likely the higher the level of income you take.

The income you receive may be lower than the amount you could receive from an annuity, depending on the performance of your investments. As annuity rates can change substantially and rapidly, there is no guarantee that when you do purchase an annuity the rates will be favourable. This could mean that your pension thereafter may be less than you hoped for. The rules governing how much income you can take directly from your pension fund may change. This could mean that the income you can take from the investment no longer meets your requirements.

The value of an investment with St. James’s Place will be directly linked to the performance of funds you select, and the value can therefore go down as well as up. You may get back less than you initially invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.