PENSIONS

With a personal pension, you pay a regular amount, usually every month, or a lump sum to the pension provider who will invest it on your behalf. The fund is usually run by financial organisations such as building societies, banks and insurance companies. 

The final value of your pension fund will depend on how much you have contributed and how well the fund's investments have performed.

You can take up to 25 per cent of the value of your total pension savings from all sources as a tax-free lump sum when you retire, up to a maximum of 25 per cent of the lifetime allowance. The lifetime allowance for the tax year 2007-2008 is £1.6 million, gradually rising to £1.8 million by 2010-2011.

You then have two broad options:

1:  use the rest of the fund you have built up to buy an annuity (a regular income payable for life). All personal pension plans include an Open Market Option. This gives you the right to transfer your pension funds to a different plan provider. To put it another way, it means you can and should shop around for the best annuity deal for your money - remember it is your money!

2: take an income (taxed at your normal Income Tax rate) from the remainder of your fund while it continues to be invested – as an 'unsecured pension' up to age 75 or an 'alternatively secured pension' once you reach age 75

When I draw my Pension must I buy an annuity?

A pension annuity is bought by using your pension fund, at the time you retire, to provide an income in retirement.

Many private personal pension plans now allow you to draw your benefits at the time you wish to retire but do not force you to purchase an annuity. Your income is provided by making withdrawals directly from the pension fund which remains invested. Under current rules you can defer the purchase of an annuity until the time you reach age 75.

If you wish to investigate the option of deferring the purchase of your annuity when you retire please contact us for assistance.

* The FSA does not regulate state pensions or all aspects of tax planning.