Many people now choose a more gradual transition from working life into retirement, and our pension products support a flexible, phased approach from saving to taking an income.
The rules that define how and when people can access their retirement savings have changed significantly since April 2015, with flexibility and choice becoming more important. At Aegon, we’re ready to help you and your clients navigate the new range of options available.
Clients now have broadly three income options available to them when they wish to take benefits from their retirement savings, these are:
cash lump sums.
Options available for taking an income
The table below shows how we can help you facilitate the available options, or use them in combination to build your clients' overall retirement income.
|Cash lump sum||Annuity||Flexi-access drawdown|
|Cash in your client's money, and pay tax on savings over 25% 1 of their total pot||Guarantees an income for life but with limited flexibility||Provides an income whilst their fund remains invested but their income isn't guaranteed|
|Guaranteed income for life||No||Yes||No|
|Pass savings to loved ones||Yes||Extra cost||Yes|
|Make changes if needed||Yes||No||Yes|
|Growth potential||Yes||Extra cost||Yes|
1 The amount of tax-free cash available may vary depending on circumstances and any guarantees previously secured.
Flexi-access allows clients to take an income from their pension plan while leaving the pension fund invested, so they can still benefit from potential investment growth.
There’s no limit, apart from the size of the drawdown fund, to the amount of income a client can take through ﬂexi-access drawdown. Income taken will be subject to income tax. When we make payments to a client which are subject to income tax, HMRC will need to provide us with their tax code for the applicable tax year. Where we make a payment before we have a client’s tax code, we will apply an ‘emergency’ code.
Drawdown is available from age 55 and charges apply.
Things to consider:
Drawdown allows a client to keep their pension fund invested and choose how much income to take from it.
The pension fund is still exposed to investment risk and could fall in value, so it’s important to review a client’s fund choice before, and whilst, taking an income.
If investment growth doesn’t keep pace with the level of income and drawdown charges taken, the pension fund will reduce in value.
After any income is taken under ﬂexi-access drawdown, contributions to a client’s plan will be subject to the money purchase annual allowance.
If the funds were already in capped drawdown before 6 April 2015, this will remain available. The maximum amount of income is capped at 150% of the Government Actuary Department (GAD) limit.
Money purchase annual allowance
It’s possible to trigger a reduced annual allowance limit, known as the money purchase annual allowance (MPAA). If the MPAA applies to your client, contributions above the limit to their registered pension schemes are taxed. (This excludes transfer payments.)
There are a range of actions that trigger this, but the most common are:
taking an uncrystallised funds pension lump sum (UFPLS) from the pension pot;
your client had a flexible drawdown plan before 6 April 2015, and
your client starts taking income from a flexi-access drawdown pension.
The value of an investment can fall as well as rise and isn’t guaranteed. Your client could get back less than they originally invested. Special rules apply in the first year the MPAA applies.