"There are a number of decisions to make upon reaching retirement age; decisions such as should you drawdown an income from your pension pot as cash or purchase an annuity?
If you have defined contribution pensions you can take out up to 25% of their total funds as a tax free lump sum, which could provide a large sum of money, with the remainder used for retirement income. However, you may need to rely on other sources of income or capital to fund desired retirement lifestyle.
Drawdown is a way of taking an income from the money you have built up in a defined contribution pension and using it to supplement earned income, if you move to semi-retirement, or provide all your income needs when you decide to fully retire. As capital and income can be drawn when required it can provide a good deal of flexibility and control over your finances in retirement allowing you to maximise your tax allowances and benefits and at times defer income if not needed.
With Drawdown, the funds are typically left invested until you need them and therefore this strategy is considered more risky than taking an annuity as the funds could run out in your lifetime. As a result you need to carefully assess your capacity and appetite for investment risk.
An annuity is a financial product that can be purchased using funds from a defined contribution pension. The income provided is agreed at the outset and the rate of return is calculated using a number of factors such as interest rates, age and health of the recipient, with the income usually then paid for life.
There may be more tax-efficient ways of utilising your wealth when you retire, especially if you have other assets which can also provide you with an income. It may make sense to keep your pension savings invested and to take an income from other available sources. Please contact us for further information on how to prepare your finances for your retirement.
Past performance is not a guide to future performance. Investors may not receive back the full amount originally invested and the value of investments and the income from them may fall as well as rise. Tax treatment depends on individual circumstances and may be subject to change in the future.
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For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
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