You’re retiring soon

Take your pension savings in a way that suits your retirement plans

Whether you plan to carry on working full-time or part-time, retire completely or simply want to consider your options, recent changes to pensions legislation give you much more flexibility when deciding how to take your pension.

What are your options?

Take a mix of lump sums and income from your savings, or just do nothing for now and leave your money invested. Choosing what to do with your pension savings is an important financial decision, so take a good look through your options before deciding.

Leave your money invested

There’s no longer a time limit on taking your pension savings. So, if you don’t need your savings to create an income just yet, they can stay invested until you do.

What to expect

  • Potential larger pot when you need an income if your savings continue to grow.
  • Increase your savings by continuing to make contributions.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75.

What to consider

  • The value of your pension fund is not guaranteed and could go down as well as up. You may get back less than you invested.
  • You may miss out on income in the short term that you will never recover.
  • Review your investments to make sure they’re providing the right level of risk and return for your future.
  • Your beneficiaries will pay tax on the money from your pension if you die when you are over 75.
  • The tax treatment of tax-free cash may change in the future.
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Heather wants to defer her pension

Heather is 65 and decides to defer taking her pension, as she wants to continue working for another three years. It’s currently worth £75,000 and could provide a tax-free lump sum of £18,750 plus an annuity annual income of £2,849. But in three years’ time her pot could be worth over £81,955. This will give her a tax-free lump sum of £20,489 plus an annual annuity income of £3,296 when she retires.

  • Defer taking an income
  • See how your savings could grow
  • Potentially larger tax-free lump sum in the future

This case study is for illustration only. It should not be taken as advice. It assumes an investment growth rate of 3% and is based on the annuity rates of the top 3 annuity providers as at 12 March 2015. Does not take into account charges and fees.

Take your savings as you need them

You can take partial payments directly from your pension, known as ‘Uncrystallised Funds Pension Lump Sums’ (UFPLS). Your remaining savings stay invested until you want to cash them in or turn them into an income.

What to expect

  • Potential larger pot when you need an income if your savings continue to grow.
  • Take as much or as little as you like, depending on the minimums imposed by the provider.
  • 25% of each partial payment will be tax-free. 75% will be taxed as income at the marginal rate you pay.
  • As your remaining savings stay invested this gives them an opportunity to continue to grow.
  • Take partial payments from age 55.

This option isn’t available from all providers, so we suggest you speak to your current pension provider to find out what they offer. LFSL do not provide this option.

What to consider

  • You still need a source of income after you have cashed in your pension savings.
  • You may run out of money for your retirement if you do not manage your partial payments appropriately.
  • Your partial payment becomes liable to inheritance tax after you cash it in.
  • Review your investments regularly so they continue to provide you with the payments you want.
  • You’ll only receive tax relief on up to £10,000 of your defined contribution retirement savings each year after you start taking partial payments.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75. They will be taxed if you die after 75.
  • You may end up paying a higher rate of tax, so reducing the amount you were expecting to receive.
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Helen wants to take ad-hoc lump sum top ups

Helen has an employer pension plan that provides her with a regular income. She also has a personal pension that she’d like to use to top up her income and pay for holidays. She decides to cash in a part of her personal pension, being careful not to push her annual income into the higher rate tax band. She speaks to a financial adviser about reviewing her investments so she can continue to take lump sums for the next five years.

  • Take lump sums when you need them
  • Use the cash how you like
  • Remainder stays invested

This case study is for illustration only. It should not be taken as advice.

Take all your savings as cash

Take your entire pension savings as a cash lump sum if you don’t need to, or don’t want to use it as an income.

What to expect

  • Access your pension when you reach age 55.
  • Take up to 25% of your cash lump sum tax-free.
  • The remaining 75% is taxed as income at the marginal rate you pay.

This option isn’t available from all providers, so we suggest you speak to your current pension provider to find out what they offer.

What to consider

  • You still need a source of income after you have cashed in your pension savings.
  • You may end up paying a higher rate of tax, so reducing the amount you were expecting to receive.
  • Your cash lump sum becomes liable to inheritance tax after you cash it in.
  • You’ll only receive tax relief on up to £10,000 of your defined contribution retirement savings each year after you cash in.
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Richard wants to use his pension to help his daughter

Richard has three different pension plans that he has saved into over the years. He plans to merge the two larger pots into one pension to provide an income when he retires. This leaves him with the third pension pot of £26,000. He wants to use this to help his daughter buy a flat, so he cashes it in. Richard takes 25% tax free, which is £6,500. After taking his personal allowance into account, he pays 20% tax on the rest, leaving him with £15,600.

  • Take up to 25% tax-free
  • Pay tax on the remainder
  • Use the cash how you like

This case study is for illustration only. It assumes Richard is a basic rate taxpayer with no other income. The tax you pay will depend on your personal circumstances.  It should not be taken as advice.

Small pot lump sum payments

There are special rules about cashing in pension savings worth £10,000 or less.

  • Take up to three personal pension pots (up to £10,000 each) as small pot lump sum payments in your lifetime.
  • Take your money from age 55 or over, unless you are retiring early due to ill health.
  • Usually 25% of your lump sum will be tax-free but you’ll be taxed on the remaining 75% at your marginal rate.
  • No additional restriction of your annual allowance, unlike taking a partial payment

Take a flexible income

Take income from your pension savings when it suits you. You can vary the amount of income you take and how often you take it. The rest of your pension savings stay invested until you need them. We provide flexible access to your retirement savings through our two income drawdown plans.

What to expect

  • Start taking an income from age 55.
  • Take up to 25% of your pension savings tax-free before you take a flexible income.
  • Use part or all of your savings to provide an income.
  • Could help with tax planning by varying the amount you take and when you take it.
  • Choose where to invest your remaining savings to provide you with an income in the long-term.
  • Switch investments as you wish.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75.

Some of these options may vary between providers.

What to consider

  • Carefully plan how to invest your pension savings so they last for as long as you need them.
  • Review your investments regularly so they continue to provide you with the income you want.
  • You may run out of money for your retirement if you do not manage your income levels appropriately.
  • Income is not guaranteed.
  • You'll pay tax on your income at your highest income tax rate.
  • You may no longer remain eligible for state benefits when you start receiving income from a plan.
  • You’ll only receive tax relief on up to £10,000 of your defined contribution retirement savings each year after you start taking a flexible income.
  • Shop around for the most suitable drawdown plan for your needs.
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Philip wants to manage his retirement income to minimise tax

Philip has a pension fund of £120,000. He wants the flexibility to manage his retirement income so that he doesn't start paying higher rate income tax. He sets up an income drawdown plan that allows him to choose a certain level of income. If he needs to, he can top up his income by taking ad-hoc payments. His financial adviser monitors his investment funds to make sure they're on track to continue providing an income for the future.

  • Take up to 25% tax-free
  • Choose your income level
  • Remainder stays invested

This case study is for illustration only. It should not be taken as advice.

Take an annuity for guaranteed income

An annuity provides you with a guaranteed regular income for a set amount of time, usually for the rest of your life.

You don’t have to take an annuity offered by your pension provider. You should shop around for the most suitable annuity for your needs. You can buy an annuity from any company that offers one. This is called the ‘Open Market Option’.

What to expect

  • Take an annuity from age 55.
  • Take up to 25% of your pension savings tax-free before you take an annuity.
  • Use part or all of your savings to buy an annuity.
  • The guaranteed income you receive is based on your personal circumstances and current rates.
  • Enhanced’ annuities can provide more income if you smoke, are overweight or have a health condition.

This option isn't available from LFSL, so we suggest you speak to your current pension provider to find out what they offer.

What to consider

  • You can’t change your mind once you have bought your annuity. This may change in the future.
  • Certain annuities will continue to pay out to dependants after you die.
  • When purchasing an annuity the capital used cannot be passed on.
  • Inflation may reduce how much you can buy with a fixed annuity over the years.
  • You'll pay tax on your income at your highest income tax rate.
  • You’ll only receive tax relief on up to £10,000 of your defined contribution retirement savings each year after you start taking a flexible annuity income.
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Geoff wants the best guaranteed income for him and his wife

Geoff is retiring in six months and his wife, Kate, will retire at the same time. They plan to use Geoff’s pension savings to provide them with a guaranteed income from an annuity. They take 25% tax-free from his pension pot and use some of it to pay for a holiday and keep the rest as savings. The remainder is used to buy a joint life annuity that keeps up with inflation. They shop around for the best annuity income. As Geoff has a heart condition, he is eligible for an enhanced annuity.

  • Take up to 25% tax-free
  • Shop around for the best income
  • Guaranteed income for life

This case study is for illustration only. It should not be taken as advice.

Straightforward products

Our personal pension and drawdown plans offer you straightforward and flexible choices when providing for your retirement.

  • Income Drawdown Plan
    • Take up to 25% of your pension fund as tax-free cash
    • Choose what taxable income you need
    • Your pension fund remains invested
    • A medium to long-term investment
    • Choose where to invest from a range of portfolios
    • Pass on your remaining savings when you die
  • Cash Fund Drawdown
    • Designed for those who want to deplete their pension fund over a short time
    • Take up to 25% of your pension fund as tax-free cash
    • Choose what taxable cash withdrawals you need
    • Invests in the LF Cash Fund
    • Pass on your remaining savings when you die
  • Personal Pension Plan
    • Tax relief can boost your pension savings
    • Make as many regular or ad-hoc payments as you like
    • Invest in a range of funds or choose a Lifestyle profile
    • Increase, decrease, stop and start your payments to suit your circumstances
    • Flexible ways to take your savings at retirement
  • Stakeholder Pension Scheme
    • Closed to new business
    • Receive tax relief on your pension savings
    • Simple and straightforward investment choices
    • Annual Management Charge not exceeding 1%
    • Flexible ways to pay to suit your circumstances
    • Your employer can make contributions too

Helping you to plan

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Tax information

Put simply, you don’t pay tax when saving into your pension, but you do when taking your pension.

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Countdown calendar

If you have a pension with us, we explain what happens as you get closer to retirement.

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