Since April 2015, you have greater flexibility over how you take money from your pension - any time from age 55.

Please note if you are planning to take money out of your pension in the near future, you are entitled to free, impartial guidance from Pension Wise. You can access Pension Wise on the MoneyHelper website or call 0300 330 1003 (from outside the UK +44 20 3733 3495), if you wish to use this service.

From age 55, you can:


Opportunities

1: Flexible access: You can easily vary the amount of money and when you take it to meet your current and future needs.

2: Extended growth potential: You can leave your pension fund invested until you need it, in order to maximise its growth potential.

3: Tax-planning: You can use flexi-access drawdown A form of income drawdown available from 6 April 2015 where there is no limit on the amount of income you can take each year. to plan for your changing tax status. For example you may choose to take your tax-free lump sum element while you are still working and subject to a high level of tax. You could then take the taxable income when you stop working and may fall into a lower tax bracket.

4: Estate planning: On death, any money left in your pension fund will not form part of your estate for tax inheritance tax purposes. If you die before age 75, pension funds are passed on tax-free to your beneficiaries. Should you die after 75, you can also pass your pension on to your beneficiaries but they will be taxed as income. This can make pensions a tax-efficient way to pass on assets.


But there are also risks

These freedom also presents some major risks:


RISK 1:
Losing pension guarantees: Some individuals are choosing to transfer their employer’s defined benefit (‘final salary’) pension schemes A pension plan where the income received in retirement is guaranteed, based on an individual’s salary and number of years of service. Many companies have replaced their DB pension schemes with defined contribution plans because the cost of providing the promised pension is considered unsustainable. Also known as a final-salary pension scheme. into personal pensions to take advantage of the new freedoms – but are losing valuable pension guarantees in the process.

RISK 2: Becoming the victim of a scam: Individuals looking to access their pension fund are often being targeted by fraudsters seeking to part them from their money by promising unrealistic returns or promising to help them withdraw their pension.

RISK 3: Running out of income: Withdrawing large lump sums or very high levels of income can deplete the pension fund so there isn’t enough to provide a sustainable income throughout retirement.

RISK 4: Paying too much tax: Whilst 25% of your pension is normally available tax-free any further money you take out, will always be subject to income tax. This may mean if you take out a large amount in a single tax year, you could end up in a higher rate tax bracket and with a large tax bill.

RISK 5: Falling fund values: Keeping a pension fund invested in the stock market can see its value fluctuate – perhaps at a time when you may not have enough time to recover from market falls. If your pension fund is small, you may find it hard to diversify investments sufficiently to spread risk.

RISK 6: Uncertain income levels: Unlike an annuity, flexi-access drawdown offers no guarantees about the level of income available or how long it can be paid for.


Please note: Flexibly accessing your pension – either through UFPLS or flexi-access drawdown – will limit how much you can pay in to any pension scheme to £4,000 a year.



Investment strategy

If you are looking to withdraw money from your pension without following regulated financial advice, you may not be fully aware of the options available to you, or how your current investments can support your desired level of income.

The FCA's ‘Investment Pathways’ framework seeks to provide you with general investment strategies that align with how you intend to access your pension over the next five years. To learn more about how Investment Pathways could work for you, you can use the Investment Pathways Comparison Tool hosted by MoneyHelper at www.moneyhelper.org.uk.

This guidance aims to make you aware of the drawdown choices you can make, and how your investment decisions can be tailored to fit with your financial goals.

Please note that James Hay does not provide financial advice, and does not offer Investment Pathways at this time; we strongly suggest that you seek advice from a regulated financial adviser.



Introducing 'Investment Pathways'

If you are looking to withdraw money from your pension without following regulated financial advice, you may not be fully aware of the options available to you, or how your current investments can support your desired level of income.

The Financial Conduct Authority’s (FCA) ‘Investment Pathways’ framework seeks to provide you with general investment strategies that align with how you intend to access your pension over the next five years. To learn more about how Investment Pathways could work for you, you can use the Investment Pathways Comparison Tool (from 1 February) hosted by MoneyHelper at www.moneyhelper.org.uk.

This guidance aims to make you aware of the drawdown choices you can make, and how your investment decisions can be tailored to fit with your financial goals.

Please note that James Hay does not provide financial advice, and does not offer Investment Pathways at this time; we strongly suggest that you seek advice from a regulated financial adviser. If you do not have one, you can find a list of regulated advisers in your area at www.unbiased.co.uk or by calling 0800 023 6868.


Getting advice and guidance

The choices you make for your pension fund can determine the level of income you receive for the rest of your life. For this reason, we strongly encourage you to seek regulated financial advice and guidance to decide the best course of action to take.

James Hay cannot provide advice. If you would like to speak to a regulated financial adviser but do not have one, please visit www.unbiased.co.uk to find a regulated adviser in your area.

If you are planning to take money out of your pension in the near future, you are also entitled to free, impartial guidance from Pension Wise. You can access Pension Wise on the MoneyHelper website or call 0300 330 1003 (from outside the UK +44 20 3733 3495), if you wish to use this service.

Please note: You can only take advantage of the pension freedoms from age 55. Anyone thinking of withdrawing lump sums from their pension fund should consider the impact this will have on future retirement income.

Factsheet
Read more about your options for accessing your pension here.

MoneyHelper has produced a brochure to explain your options at retirement.