As you approach retirement, you have a big decision to make. How do you want to access your pension money?
Three ways to access your pension
There are generally three ways you can do this – drawdown, buying an annuity, or a lump sum.
Drawdown
One way access your pension is via Drawdown. You’ve probably heard of it, though you may not know what it actually means. Drawdown offers flexibility and allows you to access your tax-free cash separately, while keeping the rest invested. You could make regular withdrawals to cover the essentials, or take ad-hoc lump sums for those one-off costs, like a special trip or home repairs.
Because your remaining money stays invested, it has the opportunity to keep growing, but its value may fluctuate. So it’s important to review your strategy regularly to make sure your money lasts as long as you need it to.
Lump sum
Alternatively, you could choose to take your entire pension as a cash lump sum all at once. You can take 25% tax-free and you’ll pay income tax on the rest. For large withdrawals, you should be mindful of a potentially large tax bill.
Annuity
If you’d prefer to trade that flexibility for more certainty, you might consider buying an annuity, which usually provides a guaranteed income for life.
You can also choose a mix of options – using an annuity to cover essential bills, lump sumps to pay for one-off costs like home improvements or a new car, and drawdown for more flexible spending.
It’s important to work out what’s right for you, but you can seek free guidance from Pension Wiseor advice from a financial adviser if you’re still unsure.
We do not currently offer drawdown products (for the Moneybox Pension).
Taking benefits from your pension is a significant financial decision. We strongly recommend seeking free guidance from Pension Wise or advice from a financial adviser before making a choice.
There are a number of ways to withdraw from your pension at retirement, but not all of these options are currently offered by the Moneybox Pension. When weighing up your retirement choices, it is important to consider the specific benefits, risks, and charges associated with each method. You should compare products offered by other providers on the open market, as they may offer features or lower costs that are more suitable for your individual needs.
As with all investing, your capital is at risk. The value of your pension can go down as well as up, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.