If you've been sensible during your working life, you’ll
have put money aside from each pay cheque to go into a pension savings pot, and
as you approach retirement you’ll need to decide the best way of accessing that
money.
Most people have their pension in a personal pension plan – a long term investment that the government makes a contribution to via tax relief on the contributions that you pay in. The government does this to encourage more people to save for their pension.
For every £1 that you pay in, the tax man will add 25 pence. There is an upper limit on this tax relief of 100% of your taxable earnings or £3600 per year, whichever is the greater. You can make payments regularly or one-off payments, or a mixture of the two.
From the age of 55, you are able to access your pension savings. You can take up to 25% as a cash lump sum, which is free of tax. Many people do this, and then put the remainder into a financial product called an annuity. This is a way of guaranteeing an income for the rest of your life.
Annuities come in a range of different structures, and you can find out more about how it works using the annuity guide at Age Partnership. Some of the choices you’ll need to make include how often you will receive payments and whether to fix those payments or to peg them to inflation rates, so that you always keep on track with any rises in the cost of living.
Some people have an income that is paid to their spouse or another dependant, even if the annuity holder should die first. You can find out about a joint life annuity at Age Partnership, a company that offers specialist financial services to those aged 55 and over.
By setting up an annuity, you can budget for a comfortable retirement, and have the security of knowing exactly how much income you will receive and when.
If you haven’t yet started saving for a pension, it’s never too late to begin, and you can even make the investment choices yourself with a self-investment personal pension (SIPP).
