Retirement
You can retire at any time between age 50 and 75. From 6 April 2010, the minimum age of 50 increases to 55. You can take your retirement benefits even though you continue to work and receive both a salary and a pension.
At retirement you can take up to 25% of your fund (including protected rights) as a lump sum which is tax free. The remaining 75% must be used to provide a pension. This does not mean that an annuity has to be bought. The purchase of an annuity can be deferred and an income taken from the fund. This process is known as Income Withdrawal which is described in the section on Flexible Retirement. An annuity must be bought by age 75. At retirement, when benefits are taken, a test must be carried out against the Lifetime Allowance.
- I am going to work part-time. Can I just take part of my pension?
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Yes, you can do this (subject to the rules of your provider allowing it) and take the rest at a later date. You will also be able to take 25% of the amount you crystallise as a tax-free lump sum.
- I am contracted out of the State Second Pension. I understand the rules have changed to allow me to take part of my contracted out fund as a lump sum – is this true?
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Yes, from 6 April 2006, new rules allow you to take 25% of the contracted out fund (known as protected rights) as a lump sum tax free.
Also you are no longer restricted to not being able to access your protected rights fund before age 60. You can now do this from age 50 (rising to 55 from 6 April 2010).
- Does the minimum age of 55 apply to everyone?
At present, those in special employments, e.g. sportsmen, ballerinas, etc., have the right to take their benefits at an age earlier than 50. That right will be protected but only for those in such schemes as of 6 April 2006.
When benefits are taken they must be tested against the Lifetime Allowance. The Lifetime Allowance in this case is reduced by 2.5% for every year between the date of crystalisation and age 50 (before 6 April 2010) or 55 (on or after 6 April 2010).
- If I want to buy an annuity, do I have to buy it from the insurance company with which I have been saving my fund?
No, you can take your money to any other insurance company who will give you a higher annuity. There is a very active and competitive market for pension annuities. You could find a difference of as much as 30% or 40% between one insurance company and another.
The facility to buy your annuity from the company that will give you the largest pension is known as the Open Market Option. Your existing insurance company should tell you of this option when you come to retire. Failure to do so would be maladministration.
You may need to get professional advice from an Independent Financial Adviser to find out the best deal available. If you want to do this on your own, the Financial Services Authority have a website which gives comparative rates. The web address is: www.fsa.gov.uk/tables
Q & As
