How deferring your pension works
Whenever you choose to retire, how and when you take your pension is completely up to you.
If you don’t need to access your pension straight away, then you don’t have to. For example, you might have savings to fall back on, another pension pot or are phasing your retirement by reducing your working hours.
If you can afford to leave your pension alone for the near future, your money will stay invested for potential growth. That could give you a larger pension pot to take flexibly in the future. But remember, the value of your investments can go up and down.
You can also continue to pay into your pension to further boost your retirement savings, benefiting from tax relief along the way. While your pension stays untouched, you won’t have to pay tax on it unless your contributions go above the annual allowance.
In the unfortunate event that you pass away before you reach 75, your money can be passed onto your loved ones, tax free. If you die after the age of 75 and your beneficiary takes your pot as income or cash lump sums, they’ll have to pay tax at their appropriate rate. There may be an LTA (Lifetime Allowance) charge at 75, depending upon the size of the fund.
Things to consider when deferring your pension
Deferring your pension benefits isn’t always as straightforward as it sounds. It’s important to check any conditions with your pension provider before making any decisions.
Some things you may wish to check include:
- Whether or not you can delay taking your pension.
- Whether or not your pension includes any guarantees (you could lose valuable guarantees when you reach a certain age)
- Whether you’ll lose any income guarantees (like a guaranteed annuity rate) if you defer
- Are there restrictions around changing your retirement date? If so, what are the processes and deadlines for doing so?
- Whether you can take part of your pension and leave the rest where it is (by taking a gradual or flexible retirement) this is known as a Partial UFPLS.
Getting advice on your pension options
Getting advice can help you make the right decision in how you take your pension. You’ll need to make sure that your money lasts throughout your retirement, whether that comes from a pension alone or you have other savings to see you through. If you aren’t sure how much money you’ll need during your retirement, it may be worth seeking professional advice.
If you’re looking for personal advice tailored to your circumstances, you can speak to a Specialist Financial Adviser from Wesleyan Financial Services. We’re here to help you understand your pension options and how you can fund your retirement – whatever your later years may bring.