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Your pension questions answered

Your Money
Friday 24 November 2017

Earlier this month, we looked at whether the state pension can offer enough income to support you in retirement. For most people, the answer is no: you will also need to draw income from additional sources.

If you’re approaching retirement, then one source available to you will probably be your workplace pension; alternatively, you may have been paying into a private pension fund. The introduction of new pension freedoms over the past couple of years has made it a little more complicated to decide what to do with your pension. We’ve pulled together a summary of some of the most important information, including links to other relevant resources, to help you make an informed choice.

What is my pension pot worth?

This depends on a range of factors, including how long you have been paying into your pension pot and the rate at which it has grown. In order to check your pension pot, you will need to look at your yearly pension statement or, if you are less than 4 months from retirement, your welcome pack. Not received one? In that case, you should contact your pension provider directly.

What does an annuity offer?

By buying a pension annuity, you can convert your pension savings into a regular income. Usually this will be for the rest of your life, although it is also possible to buy a fixed term annuity which will last a set number of years. A fixed term annuity is an investment; as with any investment, the value of your fund can go up and down and may be worth less than what you paid in.

This gives you the security of a regular income, which can be very reassuring when it comes to budgeting your expenses and knowing how much money you will have in the years to come.

There are advantages and disadvantages of buying an annuity, and you should explore the alternatives before making any decisions. Inflation can reduce the buying power of any income that you are receiving over time. To offset the effects of inflation you could add an escalation to your plan.


Calculate your annuity income

Curious about annuities? You can use our annuity calculator to work out how much retirement income you could get.

Calculate now


How long will my retirement income last?

This is a big question – perhaps one of the most important – and the answer will depend on the total amount that you have available and your retirement lifestyle. It is a good idea to take some time putting together a retirement budget so that you can work out how much monthly income you will need.

If you are considering taking your pension as a lump sum, then this is something that you should think about carefully: do you have a strategy for making your money last? It’s important not to underestimate your life expectancy.

Will a pension lump-sum be taxed?

The first 25% of any pension lump-sum that you take out will be tax-free. If you choose to take a series of smaller lump-sums then 25% of each withdrawal will be tax free. The rest will be taxed as additional income, and can sometimes cause you to be taxed at a higher rate (up to 45%).

Use our pension tax calculator to see how different pension scenarios would affect your tax payments.

Can I withdraw my pension?

Since April 2015, there has been more freedom over how you can take your pension pot, with a range of options available – including withdrawing the entire amount as a lump-sum (the first 25% is tax free).

If you are interested in this option, you need to be aware of the risks: withdrawing your pension and spending it too early could cause you to struggle later in your retirement. You can also use your pension pot to take smaller lump sums as and when you need them, leaving the rest to continue growing.

What happens to my pension if I die?

This will depend on the type of pension as well as the age at which you pass away. The government’s pension wise service has detailed information available here, which should help you understand if and how your loved ones will be able to benefit.

Is my pension safe?

News about pension schemes collapsing or being underfunded can be scary, but the truth is that your pension has more protection than you may think. In our article ‘How safe is your workplace pension?’ we take a deeper look at the different types of pension protection, and how they might apply to your pension fund.  

Can I take my pension and still work?

Plenty of people choose to work beyond retirement age, for a wide range of different reasons – and in many cases you will also be able to claim some pension income.

  • You can claim your state pension once you reach the eligible age regardless of whether you are retiring from work. Once you reach state pension age, you also stop making National Insurance payments regardless of your employment status.

  • You can claim a workplace or private pension once you’ve reached the age agreed with the pension provider – again, this is regardless of your employment status. However, you can’t continue to pay into a pension once you have started to draw from it.

  • The pension that you draw will be taxed as part of your income. Be aware that it may cause you to pay tax at a higher rate.

Where can I get more pension information?

Pension Wise is a free service from the government, and it’s a great first port of call for anybody who wants to know more about their pension options. It’s important to seek professional advice before making any long-term decisions.

Page last updated: Tuesday 13 August 2019