Your options at retirement
Once you’ve thought about how much you’ll need at retirement and considered whether you’re on track, you should think about how you’d like to receive your benefits.
There are a few ways you can take your DC benefits at retirement so it’s important to think about which option is right for you. You have the following options:
Annuity
If you’d like a regular, guaranteed income for the rest of your life, you can purchase an annuity with all or part of your savings. There are lots of annuity options to consider. You can buy one for just yourself, or for you and a spouse/partner, and you can also choose how your pension will increase throughout your retirement. The cost of the annuity will vary depending on the choices you make about the kind of annuity you buy.
To find out more about annuities, read Fidelity’s factsheet.
Drawdown
If you’d prefer to leave your savings invested for as long as possible, you could opt for the ‘drawdown’ approach. With this option, you draw money down from your account as and when you need to (within applicable limits) while the rest of your savings stay invested. This option is designed to provide you with a flexible taxable income but isn’t available through the Plan. If you’d like to opt for this approach at retirement, you would need to transfer your savings out of the Plan and into another registered pension arrangement.
Cash lump sum
If you’d like to take some or all of your account balance as cash and manage this money yourself, you can. However, it’s important to remember that your savings will have to last you for your entire retirement. There are also tax implications to consider – up to 25% can be taken tax free, but the rest is taxed as income, and taking a large cash lump sum may push you into a higher tax bracket.
Often, people take part of their savings as one cash lump sum and buy an annuity or drawdown arrangement with the rest. However, in the YBS Plan, you could also opt to take up to five lump sums over a longer period of time – but remember, only the first 25% of each sum can be taken tax free.
Remember, you don’t have to choose one option when deciding how to access your pension. Depending on your circumstances, you can mix and match as you like, taking cash and income at different times to suit your needs.
Need help deciding?
Neither the Trustees nor Fidelity can give you financial advice. If you need further guidance when thinking about your options, you should talk to an independent financial adviser (IFA). To find an IFA near your, visit unbiased.co.uk.