What are the options for taking money out of my pension?
Ping! My email inbox burst into life. “Hi Arthur. Can you give me a call? I’ve decided to retire and I want to use the pension I have with you to provide me with an income. What options do I have? When can I get my money? Thanks, Colin.”
I picked up the phone and dialled Colin’s number. Two rings and Colin answered. “Good morning. CRU Stores. How can I help?”
“Hi Colin, it’s Arthur here. You wanted some information regarding taking money out your pension”.
“Oh! Hello Arthur. Yes that’s right. I just wondered what my options were and how easy was it.”
“Well, like all things Colin, it depends. It depends on a lot of things but as a starting point, you have to think about how much risk you want to take. Do you want to be certain of your future income, do you want to provide Molly with an income on your death, do you want your income to increase each year, and so on? We’re taking about an Annuity here.
“Also if you’re suffering from some life-threatening illness, you could qualify for an Enhanced Annuity. But unless you have suffered something like that in the last six months, I don’t think that applies, does it?”
“No it doesn’t. But I remember you talking about something called drawdown, Arthur, at some of our annual reviews. Can you remind me about drawdown pensions.”
“Well here we have a totally different type of contract, Colin. Your funds remain invested and you take an income from those invested funds. However the value of your funds can go up and down depending on the stock market so you have to accept that there is more risk than with an annuity.
“One thing you should know is that, and my apologies, because I don’t like drawing your attention to it, is that on your death before the age of 75, Molly can continue taking the same income, tax free.”
“Thanks for that, Arthur”, Colin interjected. “What would she get with an annuity?”
“Depending on the type of annuity, it could be nothing, or a spouse’s income, or some of the fund back if it was a protected annuity,” I said.
“One last thing Colin,” I said, “Remember, you can take 25% of your fund Tax Free.”
“That’s good to know,” said Colin. “We could use that to fund the new extension we are thinking about. Thanks, Arthur. Actually, I heard recently about someone who took all their money at once. Over £200,000 I heard.”
“Not very clever,” I replied. “That would mean his income for that year, put him in the Additional rate of tax bracket. Was he buying a Lamborghini by any chance?”
“Maybe,” Colin chortled. “Maybe it was just pub talk. So where do we go from here?”
“Well,” I said, “the next thing to do is to meet up and for me to write to all your pension providers and establish full details for each pension you have. I have most of the details from previous reviews but let’s just check that what we have to hand is still applicable.
“Oh and one last thing. We need to redo your Risk Questionnaire. We can do that when we meet. We will also establish how much income you want and ensure that you don’t take too much and run out of funds too soon. You don’t want that, do you?”
“Certainly not,” he replied. “Thanks for your help. It sounds more complicated than I thought.”
“Don’t worry Colin, we’ll sort it all out. Let’s meet up and we discuss things in more detail. How does next Tuesday suit you? Say 10:00am in the Shop….”
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