At a glance

If you choose to transfer your pension account out of the Plan into a Drawdown arrangement, you’ll have:

An account – where your retirement savings remain invested, yet where you can access them when you need to.
Tax-free cash – the option to take up to 25% of your pension account as a tax-free cash lump sum at the point you retire or to take 25% of each withdrawal tax-free.
Withdrawals – the facility to withdraw cash as and when you require it throughout retirement (subject to tax).
Legacy options – the ability to pass on your Drawdown account to your dependants when you die.

Does this option meet your needs?

We don’t regularly think about the financial implications of getting older, such as the possibility of needing care or how long you’ll live for. But as you approach later life and need to make a decision about your retirement income, it is important to think ahead.

Only you know your financial circumstances – for example, whether loans or mortgages still need to be paid off and the sort of needs you may have later on. See the Retirement Living Standards which show you what life in retirement looks like at three different levels of income.

On average*, 65-year-olds in the UK live until they are:

Men: 84
Women: 86

*Office for National Statistics: National life tables - September 2018 (latest release)

Things to consider

Here are some things to help you consider which options will be right for you. The items highlighted in blue are the most relevant when considering withdrawing cash as and when you need to through Drawdown:

Your [Plan] retirement savings are your main or only source of retirement income

Investing in Drawdown will not provide you with an automatic regular, secure income so you will need to monitor your withdrawals and investments carefully to ensure you have sufficient income throughout retirement.

Or, you have other sources of retirement income in addition to your [Plan] retirement savings

You may prefer Drawdown if you:

Are not reliant on the income from your pension account for your retirement, and/or
Are able to afford to take more risk.

You prefer predictability

You can take a regular amount from the Drawdown account or vary the amount that you withdraw each year.
However, you will need to manage your withdrawals to ensure you have sufficient income throughout retirement.

Or, you prefer flexibility

You can use Drawdown to suit your personal circumstances throughout retirement – for example by leaving the fund invested, by making withdrawals, or by using the fund to purchase an annuity at a later stage.
The amounts you can take vary in line with your needs, provided you have enough money in your account.

You prefer security

Investing in Drawdown will not provide you with a regular, secure income.
The value of your fund may fall as well as rise and poor investment performance and/or excessive withdrawals may result in insufficient funds to support you throughout retirement.

Or, you prefer opportunity

You have the opportunity to increase your retirement savings by leaving them invested.
However, you should remember that the value of your fund may fall as well as rise and that this may impact the amount you are ultimately able to withdraw.
Please note that your account will be tested against the Lifetime Allowance again at 75, so if it grows too much you could be subject to a tax charge.

You prioritise short-term income

You can take up to 25% of your pension account as a tax-free cash lump sum.
You can also choose to take a larger income upfront – however this may result in you paying more tax and will leave less for your long-term income needs.

Or, you prioritise long-term income

You can use Drawdown to provide a regular long-term income, or alternatively withdraw funds as and when you need them.
Excessive withdrawals and/or poor investment performance may decrease the value of your fund and affect your long-term income.

You have a short life expectancy

You have access to your fund to spend on your priorities before you die.
When you die, any retirement savings remaining in your Drawdown fund can be passed on to beneficiaries of your choice.

Or, you have a long life expectancy

You have the flexibility to withdraw cash as and when you need it throughout retirement.
You will need to carefully consider the amount of cash you withdraw to ensure you have sufficient money to last throughout retirement.
Because the income is not guaranteed, you may need to think about other sources of income as the value of your fund will fall and rise.

Tax

Tax-free cash lump sum

You can take some of your pension account as tax-free cash, usually:

Up to 25% of your total pension account when you initially move to Drawdown, or
Up to 25% of each withdrawal throughout your retirement.

Income (subject to tax)

Withdrawals above your tax-free cash allowance will be taxed at the highest rate of income tax that applies to you in the year in which you make the withdrawal (20%, 40% or 45%).
You won’t pay tax on investment returns within your Drawdown fund.

When should you take tax-free cash with Drawdown?

When you enter into a drawdown arrangement you have the option to either take a quarter (25%) of your benefits up front as a tax-free cash lump sum, or you can take a quarter (25%) of each withdrawal you make as tax-free. Whether you choose one way or the other will depend on your personal circumstances and tax position, so it’s worth speaking to an IFA for advice.

How do you move into Drawdown?

We don’t offer Drawdown directly through the Plan. So if you want to use Drawdown you will need to transfer into a pension arrangement which does offer this. The Trustee can put you in contact with a Drawdown provider to facilitate this option for you at retirement, it is called LifeSight. However, while the Trustee believes this should offer good value to many members, this arrangement will not be the most appropriate for everyone, and you are under no obligation to use this. It’s important to consider your personal circumstances before you make a decision. There are many different drawdown arrangements available. You can read more about drawdown arrangements on the MoneyHelper website.

Anouska's Choice

Anouska wanted flexibility to take her money a bit at a time, changing how much she took and when. After taking financial advice and confirming that this was the right thing to do, she transferred out of the Plan and took Drawdown.

Anouska’s choice is just an example and does not suggest a particular option that you should choose yourself. Please look at all of the options available to you and consider seeking regulated financial advice before making any decisions about your own benefits.