Taking money from your pension plan soon? Here's what to think about

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Taking money from your pension plan is a big decision and when and how you do it can have significant impact on how long your savings will last.

So, when the time comes, it’s important you feel confident you understand your options and how your decisions might affect the tax you pay and how long your money will last.

Taking money from my pension plan - where do I start?

Knowledge is power as the old saying goes, so get familiar with your options before you plan to take anything from your pension savings.

To help you make the most of your pension savings, ensure you have an up-to-date value of your pension plan (or plans) from your provider and find out what features, benefits and charges are included. You can often do it online.

Here are some things to consider doing

• Find out more about pensions and retirement on our website; and sign up to join one of our online webinars 
• Get an up-to-date valuation from your pension provider
• Pension Wise, a service from MoneyHelper, can help you understand your options and MoneyHelper also have useful tools for understanding how much money you may need in retirement
• It’s not right for everyone, but consider whether consolidating all your pension plans into one place might be a good idea for you. Find out more on our Transfer my pension page
• Discuss your money and your plans with your adviser if you have one. If you don’t but you are interested in getting one, try unbiased.co.uk. Please note there’s normally a charge for financial advice

When can I take my money?

You can normally start to take money from your pension savings from age 55 (rising to age 57 in 2028) if you choose to.

You don’t have to take it and the longer you leave it invested, the more it has a chance to keep growing. Remember a pension plan is an investment and its value can go down as well as up and you could get back less than was paid in.

You also don’t have to take it all at once, it can be tax efficient to keep your savings in your pension plan, and only take what you need in any one tax year.

And can I take it if I'm still working?

With some pension plans you can access your money as and when you need it to ease yourself into retirement. This can include using it to top up your salary while you’re still working, although it will be subject to income tax.

If you’re planning to take money and keep saving into your pension plan tax efficiently, there are extra things to think about.

Once you start accessing any taxable income from your pension savings, the amount that can be paid into any of your pension plans, not just those with Standard Life, will be limited to £4,000 per tax year. This includes any contributions your employer makes on your behalf and is known as the Money Purchase Annual Allowance. 

Pension plans are also about meeting your long-term needs, so if your current pension plan
isn’t offering what you want for your retirement goals, you might want to consider moving your pension savings to another pension plan or provider.

If you would be giving up any valuable guarantees or benefits on your current plan, for example a Guaranteed Annuity Rate, this may not be the right thing to do. So speak to your pension provider or take advice before you take any action.

So, what are my options when I am taking my money?

There are several to choose from, but you need to consider your goals and how long you might need your savings to last. The main options usually available to you are:

• Take a guaranteed income for life – also called an annuity
• Take a flexible income or lump sums, as and when you need to – often called ‘drawdown’. With this option you normally get to take 25% of your pension pot tax free, but we’ll cover this in more detail later on. If you choose this option, you’ll also need to decide how to invest the money that you’re leaving in your pension plan
• Take it all in one go – you choose to take all your money at once. You should carefully consider how much income tax you may pay if choosing this option
• Or mix your options

MoneyHelper can help you understand your options.

Get the best deal for your pension savings - and shop around

You might not realise this, but you don’t have to access your pension savings with your existing provider(s).

Once you know how much is saved and what features and charges you have in your pension plan, as well as how you’re planning to use it, you should shop around to get the best deal for you, which could mean better benefits.

Consider choosing a provider that gives you all the options you need for your options in retirement and your money on your death.

Check out comparison websites, contact companies directly and, if you’re aged 50 or over, you could use Pension Wise before making your decision. You can usually get some guidance over the phone or face-to-face.

How long does it normally take to access my money?

Because a pension plan isn’t like a bank account giving you instant access, it makes sense to plan ahead at least a few months before you want to start taking your money. You can spend that time getting to know your options too.

Check out your chosen provider’s website and set yourself up online if you can – it is usually straightforward to do.

What's the deal with tax-free cash?

You can normally take 25% of your pot free of income tax. Some pension plans have different levels of tax-free cash, so check with your pension provider how much you’re entitled to.

You can either take your tax free cash in one go, or take it out across different tax years to help you manage your income tax efficiently each year.

Not all pension plans let you do this – with some you have to take your tax-free cash all at once.

Or don’t take any cash at all if you don’t need it and leave it invested with the opportunity to keep growing.

Get tax savvy

Whichever way you plan to take your pension money, you need to think about tax, as there may be income tax to pay on any money you take out over your tax-free cash.

Take all your money at once and you could pay more income tax than you need to. Take it over a number of years and it is likely to be more tax efficient which means you get to keep more of your money.

Tax can be complicated and you may want to read more from Pension Wise or HMRC. You can even get a free face-to-face meeting with Pension Wise to give you guidance. 

It’s important to note that laws and tax rules may change in the future and your own personal circumstances and where you live in the UK will have an impact on tax.

So, how do I actually take my money out?

You can normally take money from your pension pot yourself online – just log in if you have a Standard Life pension plan. Or in some circumstances you may want or need to call.

If you’re not registered for online services, you can sign up – again it makes sense to do this in good time.

When and why would I need to choose investments?

If you plan to take your pension money as a series of lump sums or flexibly as an income, the remaining money in your pension pot stays invested – normally in funds.

You need to make investment choices, as the rest of your pension money is invested in funds that you choose. And even after you start taking your pension money, it’s important to regularly review your investments to make sure they’re still right for you and your goals.

What else do we suggest you think about?

1. You need your money to last

Whatever you decide to do, you need to think about how long you need your pension savings to last.

Our pension calculator can help you work out how much you might need in retirement.
 
2. Be scam smart

When it comes to any savings, if you come across any ‘too-good-to-be-true’ investment opportunities, they are very likely to be a scam.

Always check with the Financial Conduct Authority (FCA) to see if a company or individual is authorised to provide investments and be very wary of high-pressure sales tactics and unregulated ‘opportunities’ – such as diamonds, land, forests, and real estate, particularly overseas. You aren’t protected by the FCA as many people have found out to their cost. MoneyHelper can also help with guidance.

3. Consider your legacy: Your Will and your pension savings
 
Money in your pension plan can be passed on more tax efficiently than ever, depending on what type of pension plan you have, who you want to leave your pension savings to and the age you die.

Your Will doesn’t normally cover your pension savings – so it’s important to tell your pension provider who you want your money to go to on your death. You can do this by nominating your beneficiaries and keeping them up to date. You can nominate the people – or charities – you’d like to get your pension savings, either online or by contacting your provider. They’ll take your wishes into account.

Leaving money to loved ones can be a complex area, so make sure you understand how to pass your wealth on tax efficiently to whomever you want.

Who you leave your money to also has tax implications and it makes sense to take advice on this.There’s likely to be a charge for this.

4. Think about the impact of any decision on means-tested state benefits
 
Any benefits you currently receive can be reduced or stopped entirely if you start taking any money from your pension savings. It could also affect any future benefits you may be entitled to, such as help with long-term care.

If you think this could affect you then check with the Department for Work and Pensions.

5. Get to know your State Pension

Knowing what you could get in the future can help you plan.

Find out more on what you could get and when, here.

6. Find any lost pension plans

If you think you’ve lost one, all you need is the name of your employer or pension provider to get started. If you don’t have those, you can use the Government’s online Pension Tracing Service.

Still not sure?

If you’re unsure what’s right for you, consider getting financial advice. It could make a big difference to your money and your peace of mind.

Although there will likely be a cost, it could save you money in the long run.

If you don’t have an adviser, you can find one in your area at unbiased.co.uk .

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This article shouldn’t be taken as financial advice and is based on our understanding in May 2021.

Standard Life accepts no responsibility for information contained on external websites. This is for general information only.