Retirement and taking your pension

• Annuity

  At retirement you have a choice about how to use your pension pot and one of your options is to purchase an annuity. An annuity is a product from an insurance company that will provide you with a regular guaranteed income in retirement. You can buy an annuity with some, or all of your pension pot and it will pay you an income either for life or for an agreed number of years.

  The insurance company will provide you with several choices about your annuity, such as how it increases and what benefits will be paid if you die. It is important that you understand your options as it is not possible to change them once the annuity is in payment.

  Age UK – Annuities explained – what are annuities? | Age UK - This link opens in a new browser window

  Money Helper – Guaranteed retirement income (annuities) explained | MoneyHelper - This link opens in a new browser window

• Crystallised pension benefit

  This is the point at which a pension becomes payable.

• Drawdown

  At retirement you have a choice about how to use your pension pot, one of your options is to transfer your pension pot into a flexible drawdown scheme. This allows you to have your pension fund invested in a way that means you can draw an income (or ad hoc cash amounts), which can be varied in terms of both frequency and amount to suit your personal circumstances. The fund remains yours unlike an annuity where you give an insurance company your pension pot and they guarantee you an income for life.

  If you are considering transferring your benefit to a flexible drawdown scheme, we would recommend reading through Money Helper’s drawdown guide to get more of an understanding if it is the right option for you – Pension drawdown: what is flexible retirement income? | MoneyHelper - This link opens in a new browser window

• Guaranteed annuity rate

  Most annuities pay a guaranteed income for life, but this is not the same as a guaranteed annuity rate (GAR). A guaranteed annuity rate is something that a number of older pension policies had. They offered to pay a ‘guaranteed’ rate (namely they guaranteed the level of the interest rate). At the time these pensions were sold, the rate wasn’t spectacular at all, but because annuity rates have fallen over many years, these are now much higher than you would generally get on the open annuity market.

• Guidance Guarantee

  From April 2015, everyone over 55 has been entitled to free guidance and information about their defined contribution options from PensionWise (https://www.pensionwise.gov.uk - This link opens in a new browser window) or on 0800 136 3944. It’s not the same as financial advice (in that they won’t recommend a specific product for you), but it’s a good starting point.

• State Pension

  The State Pension is separate from a benefit that you would build up via contributions with your employer. Most people will be able to claim a State Pension, however this is dependent on their National Insurance record.

  The best place to find information on the State Pension is through the government’s dedicated page here – Gov.uk – Your State Pension explained.

• State Pension age

  The age at which you’re entitled to claim your State Pension. You don’t have to take your State Pension when you reach this age. From December 2018, the State Pension age started rising for both men and women and will continue to do so, reaching 66 in October 2020 and 67 between 2026 and 2028. Check your personal retirement age here https://www.gov.uk/state-pension-age - This link opens in a new browser window

  Your State Pension age is nothing to do with your retirement age (when you choose to retire) which may be earlier or later than this.

• Tax-free cash lump sum

  You can currently take up to 25% of the value of your pension benefits as a tax-free lump sum. If you are considering retiring, please contact the pensions team and request a retirement quote. This will include an estimate of what your tax-free cash lump sum might be. You can request a retirement quote by filling in this form.