Options at retirement

Tax free lump sum

Part of your pension (up to 25%) can normally be taken as a tax-free lump sum, also known as a Pension Commencement Lump Sum (PCLS). You can take a tax-free lump sum any time from age 55, whether you then take an income from the remainder of your pension fund or not.

Income options

Whether you have taken a tax-free lump sum or not, you can draw a taxable income from your pension fund at any point from age 55.

From age 55 you can take your benefits in stages (both income and tax-free lump sum). This is known as phased retirement. You choose how much of your current fund you use to provide benefits at each stage.

Income can be taken in the form of:

1. Drawdown Pension
2. Annuity (Secured Pension)
3. Combination of Drawdown Pension and Annuity

1. Drawdown Pension
   Available at any time from age 55, a drawdown pension is an alternative to buying an annuity when you choose to take benefits.
   
   Whereas you are required to sell your investments to fund an annuity, with a drawdown pension you take an income from your invested pension fund.
   
   There is no minimum income level within a Drawdown Pension arrangement, but the maximum amount of income you can take is subject to government restrictions. All pension income is subject to income tax.
   
   
   Advantages of Drawdown Pension
   • With Drawdown Pension, your pension fund remains invested, and therefore has the potential to still benefit from investment growth, while you can also draw income directly from your assets.
   • You keep control of your investments. You continue to manage your pension fund and make all the investment decisions.
   • It may be possible to increase your income later in life if your pension fund benefits from a good level of investment returns and/or is not drained by excessive income withdrawals.
   
   Risk factors
   • All investments carry an element of risk. As your pension fund will remain invested it will continue to be exposed to the risk that investment values can fall as well as rise. Past performance is not a guide to future returns. When you sell your investment, you may get back less than you originally invested.
   • Taking withdrawals may erode the value of your remaining fund, especially if investment returns are poor and a high level of income is taken;
   • When high or maximum income withdrawals are taken these may not be sustainable
   • The cost of purchasing an annuity changes over time, so if you do decide to subsequently purchase an annuity, it could cost more or less than if you had bought it earlier.


2. Annuity
   Available at any time from age 55, a lifetime annuity converts your pension fund into taxable pension income which will be paid to you for life. They are usually provided by insurance companies. The amount of income can be either level or increasing and is guaranteed for the rest of your life once set up. Annuities therefore may suit those who are comforted by the fact their income will never run out.
   
   There are a number of different types of annuity available which allow you to take into account any requirement you may have for a spouse’s pension and whether you want your income level to be linked to inflation year on year.
   
   You should note that some annuity providers offer higher annuity rates to people who are suffering from various medical conditions or who have health limiting lifestyles. If you smoke, take medication for a medical condition or have been hospitalised in the past five years this may lead to a larger income from an annuity provider.
   
   J.P. Morgan Asset Management does not currently offer an annuity service but you can choose to transfer out to an annuity provider of your choice using the Open Market Option (OMO).