Approaching Retirement

What are my options in retirement?

Once you have reached retirement there is a vast range of options for you to consider including:

  • Annuities -An annuity is an insurance product that you can buy with some or all of your pension pot. The annuity pays a guaranteed regular income, either for life or over a set period at an agreed rate.
  • Flexible Access Drawdown – At retirement this plan will give you the flexibility of accessing your funds as a mixture of income, lump sum and Tax Free Cash of generally 25%.
  • Uncrystallised Funds Pension Lump Sum (UFPLS)– This option allows pension holders to withdraw some or all of their uncrystallised funds as a lump sum. The lump sum provides 25% tax-free cash and 75% taxed at marginal rate of income tax.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

On this page

  • How much tax will I pay?
  • What is the Lifetime Allowance?
  • What is the Money Purchase Annual Allowance?
  • How much income will I need in retirement?
  • Will I run out of money in retirement?

How much tax will I pay?

Most schemes will usually provide a 25% tax-free lump sum. Further withdrawals will be subject to income tax at your marginal rate. When taking withdrawals you can make use of your income personal allowance, which is currently £12,500 in 2020/21 tax year.

What is the Lifetime Allowance?

On taking your pension (crystallisation) the funds will be tested against the lifetime allowance.

The Lifetime Allowance is currently £1,073,100 in the tax year 2020-21. This  increases every April by  CPI (consumer Price Index) inflation rate to September of the previous year.

We offer lifetime allowance calculations to check if the value of your benefits are close to, or exceed the current lifetime allowance. Exceeding the lifetime allowance means that you may have to pay additional tax at 25% if funds are taken as an income or 55% if funds are taken as a lump sum on amounts over the allowance.

You may have options to protect your lifetime allowance by applying for ‘Protection’ offered by HMRC. This is a technically complex area and requires specialist advice, please feel free to call to discuss this subject further.

What is the Money Purchase Annual Allowance?

If you have taken income from your pension benefits you may have triggered the money purchase annual allowance (MPAA). This means that, if you still want to continue making contributions, you may have reduced the amount you can put into your pension to £4,000 per annum.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Elderly gentlemen out walking
Man approaching retirement

How much income will I need in retirement?

As we touched upon earlier, this is a key question and is entirely subjective and unique to every individual. Your retirement plans may involve luxury holidays, buying a yacht or simply just spending more time with your family.

We pride ourselves on listening very carefully to our clients. We take our time to discuss in great detail how you imagine your retirement to be. This helps us create together, the right tailored plan for you. This is a big decision and we want to help you make the right choice.

Will I run out of money in retirement?

It’s not always easy to envisage exactly how much you might need. As we work through your planning process, we can help you calculate the amount of income you will potentially require to support your dreams, goals and ambitions in retirement.

As well as working closely with you to map out your vision, we also use advanced software to analyse your current financial situation and map how long your income could last you based on many different scenarios. The knowledge that this information generates will help you to make the best decision possible.

Get in touch today to discuss your retirement plan