One thing retirement is not, is an age. Not any more, anyway. Gone are the days of being told to stop working one day and pick up your State Pension the next. Today you have new pension freedoms to decide when and how you retire. Planning your retirement as early as possible will provide you with the flexibility you need.

Pension freedoms in 2015 fundamentally changed the rules for cashing in your pensions. Current rules allow you far more freedom and flexibility over how to take your pension than in previous generations. If you’ve saved into a defined contribution pension scheme during your working life, you’ll eventually need to decide what to do with the money you’ve saved towards your pension when you retire, or at age 55, whichever is sooner.

Leaving your pension invested

You may not be ready to take your pension at the age of 55. Leaving your pension invested and continuing to contribute can provide you with more retirement income once you are ready to take your pension. Obtaining professional financial advice will ensure that you have your pension invested effectively.

Withdrawing your entire pension

At the other end of the scale, you have the option to withdraw all the savings in your pension at once. But this option has serious drawbacks, as clearly you won’t be able to take an income from your pension if you’ve withdrawn all the money. You may also receive a significant tax bill to pay. While the first 25% of your pension can be taken tax-free, you’ll pay income tax on the rest at your highest marginal rate. It would be unwise to do this without obtaining expert professional financial advice.

Withdrawing a portion of your pension

You can withdraw a lump sum from your pension and leave the rest invested to continue growing. Up to 25% of the lump sum will be tax-free and the rest will be taxed as income. So, the amount of tax you’ll pay will depend on your other sources of income.

Buying an annuity

An annuity is a guaranteed income for life (or for another set period). The income you’ll receive depends on how much you have in pension savings with which to buy an annuity, as well as some other factors, such as your health. If you choose to buy an annuity, you can also take up to 25% as a tax-free lump sum when you start your retirement.

Taking a flexible income from your pension

Finally, you can take a regular income from your pension while it remains invested and has the opportunity to grow. You can take this income at whatever rate you want, but you are responsible for ensuring it lasts throughout your retirement years. Your professional financial adviser will help you establish a sustainable withdrawal rate. Making sure that the rest of your pension is invested appropriately.

Understanding your options

If you have a defined contribution pension, at some point you’ll have to decide how you’re going to take it. But if you’re still working in your 50s or 60s, now’s the perfect time to make sure your retirement savings are on track. This will provide you with the sort of lifestyle you want when you stop work.

For more information or to discuss any of the issues raised in this article, please contact your adviser, or call us directly on 0161 819 1131. Further information can also be found at gov.uk.

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The financial conduct authority does not regulate tax advice, estate planning or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

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