Your pension options at 55

What could you do?

With the right type of scheme, there are several things you can do with your pension from the age of 55. From releasing some or all your savings, to drawing a regular income, leaving your pension as it is or selling it to an insurance company in return for a guaranteed income for life.

The right option for you depends very much on your current circumstances, your plans for the future and other savings or investments that you have. In almost all cases you cannot take money from your pension before you reach 55.

Really important bit: Taking money early from your pension could mean you have a lot less to live on in the future; it shouldn’t be seen as an easy way to raise money. That’s why it makes sense to get financial advice before making any big decisions.

Your pension and tax-free cash

In many cases you can withdraw a specific amount of money from your pension tax free. For personal and some workplace schemes the limit is 25%. The limit is different for other schemes and taking tax-free cash could affect the amount of guaranteed income you will receive from final salary pensions.

What is pension release?

Pension release is simply the act of taking money early from your pension (but not before you reach 55). You can release money from all personal / private pensions and many workplace schemes. If you have what is known as a final salary scheme, you would need to transfer it to a personal pension before you can release any money. And this could mean giving up a valuable guaranteed income for life.

What is pension drawdown?

If you go into pension drawdown it means you have started to take an income from a personal pension scheme, either as regular payments or lump sums as and when you need them. The first 25% you withdraw is tax free. After that you start paying income tax at your marginal rate1

Taking all your pension in one go

With the right type of pension scheme, you could choose to take all your savings in one go from the age of 55. Whether it’s the right thing to do or not depends on your personal circumstances. In many cases, the best option is to keep some or all your savings invested for another few years. Discover more…

Buying an annuity

An annuity is when you sell your pension pot to an insurance company in exchange for a guaranteed, regular income for life. The security of a guaranteed income could be right for you. However, annuities have dropped in popularity because they are very inflexible, and rates have fallen sharply over the last 10 years. Discover more…

Pensions you can and cannot access from 55

From the age of 55 you have the option to take money from any personal or private pension, and many workplace schemes, too. If you have a final salary type scheme you would need to transfer it to a personal plan first (usually not a wise idea). And you cannot take any money early from some government / civil service pensions.

Taking pension lump sums

If your money is invested in a personal pension, there are two main ways you can take lump sums from the age of 55. You can enter pension drawdown, which means all withdrawals are taxed after the first 25%1. Or, you can take what are called UFPLS (we know!), which have different tax rules.

Taking pension money before 55

Generally, you cannot take money from your pension before you turn 55. If a company or individual says you can then be careful, as it could be a scam. Only in very rare circumstances is someone allowed to take pension money before they reach 55, such as critical illness.

Leaving your pension as it is

You don’t have to take money from your pension when you reach 55. And leaving all your pension savings invested could have a significant impact on the size of your pot by the time you reach 60 or 65. If you leave your savings as they are then you want them invested in the best possible funds for you. That’s why it makes sense to regularly review your pot.

1 All our opinions as to taxation and related matters are based upon our understanding of the current tax law and practice of HMRC, which is subject to change. Tax treatment depends on your circumstance.

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