Private pension

Private pension funds are designed to be taken at retirement with a view to providing you an income for the rest of your life by gradually releasing the fund you built up. This is usually in the form of an annuity or through income drawdown.

If you hold a private pension scheme then you may be able to take early pension release from the age of 55 and receive some of the benefits available to you from your pension before your expected retirement date.

With pension release from your private pension you may be entitled to take up to 25% of your total private pension fund as a tax free cash lump sum. The residual amount must then either be reinvested or used to provide an income.

Should you decide to reinvest your private pension an independent financial advisor can assist you in choosing which pension provider may be most beneficial for your circumstances and needs from across the whole of the market. They will also inform you if staying with your current provider will be most beneficial for you. Your new private pension (if you moved to a new provider) will then continue to grow in value until you decide to take your full benefits as an income.

If you decide to take an income after taking pension release from your private pension then you may continue to invest your fund in your private pension and take a direct income from it in what is known as income drawdown. Alternatively you could sell the fund to purchase an annuity.

An annuity will provide you with a guaranteed income from the day you first take it until you die. Options can be selected such as a guarantee period which can then provide a portion, or all, of your annuity on to your spouse or defined beneficiaries after you are deceased. These options will have an effect on the level of income you receive.

If you would prefer a bit more control over your income then income drawdown may be a suitable option as it allows you to maintain ownership of your pension funds throughout your retirement while allowing you to be more flexible in the income you take. It must be carefully managed as if your pension doesn’t grow as projected it is possible that you could use up all your pension funds before your requirement for an income ends.

Note: Releasing your pension benefits early could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances. The above is based on our understanding of current legislation and tax rules and are subject to change by the government. Tax reliefs referred to are those currently applying. Please note the value of investments can go down in value as well as up and you may get back less than you invest.