Retirement is an exciting time. It gives you the opportunity to spend more time with your family and friends, or to tick things off your bucket list. Deciding to take retirement takes careful planning. The Pensions Freedom Act 2015, gave people greater flexibility on how they can access their pension pots. This greater flexibility also came with greater complexity, as it raises the question ‘what should I do with my pension?’.
This does not constitute advice and advice should be sought in all instances before acting on it.
As a dentist or doctor will more than likely be a member of the NHS Pension Scheme as well as having a Defined Contribution (DC) scheme. If you are aged over 55 years old you may have unlimited access to your Defined Contribution pension to spend and save as you wish.
Differing option for your pension
As we mentioned earlier there is no ‘one-size fits all’ answer to what you can do with your pension. It is very important that you talk through your options with someone who is experienced in this area. However, we have listed several options that are available to you:
Leave it alone
You can choose to delay taking your pension until a later date. The money will continue to grow, tax free.
Use the money to buy an annuity
You can take 25% as a tax-free lump sum and convert the remainder into a taxable income for life – this is called an annuity. You can also choose to provide an income for life to a dependant or other beneficiary after death.
Take a Flexi Access Drawdown
Here, you can take 25% as a tax-free lump sum and reinvest the remainder into funds that are designed to give you a regular taxable income. You can choose the level of income you want to receive, though this may change due to the performance of the investments. With a flexi access drawdown, you are not guaranteed a life time income and the investments will need careful management.
Take ad-hoc sums
You have the option to take cash from your pension as and when you need. For each cash withdrawal, the first 25% is tax-free and the rest is treated as a taxable income. There may be fees to pay each time you make a withdrawal or you may be restricted on the number of times you can do this.
Take all the money
Taking all the money is a risky decision. As well as not providing yourself with a secure retirement income, you could pay a substantial amount of tax on this money and you may find yourself in a position where you have run out of money, leaving you with little to live on.
The first 25% is tax free and the remainder will be taxed at your highest tax band as it is added to your income.
Mix it up
You may decide that no-one option is not right for you. If so, you can mix and match the options so you get the balance that is right for you. You also have the option to continue to save money into your pension and get tax relief up to the age of 75.
For pension planning, speak to Darren
Dental & Medical Financial Services have been helping doctors and dentists with retirement and pension planning for over 25 years. Call to discuss your situation with Darren to ensure you will meet your personal financial goals.
Tel: 01403 780 770