Accessing Your Pension Pot.

Pension legislation allows you to access the money in your pension pot from age 55. Depending on your scheme you may be able to take cash lump sums, a variable income through Drawdown (known as Flexi-Access Drawdown), a guaranteed income under an Annuity or a combination of these options.

When thinking about your options, free and impartial guidance is available to you from an independent government service called Pension Wise to help you understand what these mean for you.

As an overview, you can find out more about your retirement options through our video guide to help you learn the basics.

 

You can take some or all of your pot as a cash lump sum. If you haven't used up all your lifetime allowance, 25% of this will be tax-free with the remaining 75% taxable as income. Unless you take your entire pot anything remaining will stay invested until you're ready to access your pot again. Using a pot of £10,000 for example, you could:

  • Take £2,500 as a tax-free cash lump sum and the remaining £7,500 will be taxed as income, or
  • Take £2,000 each year until your pot runs out. £500 of each £2,000 payment can be tax-free.

You could even take £5,000 with £1,250 of it tax-free and leave the remaining £5,000 invested until you're ready to access more. Other options may be suitable to your individual circumstances.

Taking a cash lump sum from your workplace pension pot with Legal & General

The minimum amount you can take from your pot is £2,000. You can take one amount every 12 months without charge, however a charge may apply for any additional amounts within the same 12 month period. There is no minimum if you wish to take your entire pot.

Emergency tax will be deducted from the first amount you take, H M Revenue and Customs (HMRC) make an automatic adjustment to your tax code and will return any over payment. Alternatively, you can contact HMRC directly to reclaim any overpaid tax.

If your savings are invested in more than one fund (visit Manage Your Account to check your current investments), your cash will be taken proportionately from each fund. If you're not taking your entire pot you can use our (currently) free switching facility to change your remaining investments if you wish.

For more information about taking a cash lump sum from your pot with Legal & General, please take a look at your scheme documentation.

Flexi-Access Drawdown allows you to select some or all of your pension pot and take up to a maximum of 25% of the amount as a tax-free cash lump sum (£7,500 on a £30,000 pot) while the remainder stays invested.

You can take regular or occasional amounts as income for the life of your pot. However, a fee may apply.

After taking any tax-free cash, your remaining pot will stay invested in your existing funds (except for pensions in a lifestyle profile) until you choose to take money out. You can usually change your investment fund selection at any time, but you should check with your provider.

Staying invested means your pot may benefit from additional investment growth, helping to continue to build your savings while drawing an income.

However, the value of the investments that make up your pension pot may go down as well as up. Your pot will depend on investment performance in addition to other factors (such as charges and the effect of inflation), including how much income you choose to take.

The more you take the more likely the savings in your pot may run out. You will need to consider:

  • How much you take out in the earlier years.
  • If contributions are continuing.
  • Charges.
  • How investments perform.
  • What happens if you live longer than expected.

Taking AN income from your workplace pension pot with Legal & General

Where Flexi-Access Drawdown is available through your scheme, you must be under the age of 75. Your pension pot will need to be at least £30,000 before any tax-free cash entitlement is taken if you require a regular income. There is a one off set up charge of £250 for taking regular income. This income will be paid to you on the 21st of each month.

The minimum regular income amount is £100. If you take a regular income you can have one free occasional amount in addition to your monthly income every 12 months. Any additions on top of this may have a charge.

For occasional income the minimum amount is £2,000. There is no set-up fee.

Emergency tax will be deducted from the first amount you take, HMRC will make an automatic adjustment to your tax code and will return any over payment. Alternatively, you can contact HMRC directly to reclaim any overpaid tax.

You will lose any tax-free entitlement if you don't take advantage of the maximum 25% tax-free cash available to you when you select an amount for drawdown. Further amounts selected for Drawdown in the future will also be available with 25% of each amount tax-free.

Read our Taking Money from My Pension  guide to find out more about taking Flexi-Access Drawdown from your pot with Legal & General, or take a look at the scheme key features or member's booklet on the useful documents page.

It's important to shop around to find the most suitable provider for you. Different providers will offer different options, features, rates of payment, qualifying criteria and charges.

Use some or all of your pension pot to buy an annuity, taking up to 25% of the amount selected as your maximum tax-free cash. An annuity will provide you with a guaranteed taxable income for life or for a fixed term depending on the type of annuity you buy.

There are different types of annuities

  • A Lifetime Annuity will pay you a regular income for the rest of your life.
  • A Flexible Annuity will allow you to vary your income.
  • A Fixed Term Annuity will provide you with a regular income for a fixed period of time only.

Income from an annuity is taxable and the amount you're offered could vary significantly, particularly if you have any health or medical conditions, or relevant lifestyle factors such as smoking.

Buying an annuity with your workplace pension pot with Legal & General

You can use some or all of your pension pot to buy an annuity. You have the right to transfer some or all of your pension pot to one or more providers, so it's worth shopping around to see how we compare.

When doing this ensure you disclose any health and medical conditions you have as you could be offered more income each year for the same buying amount. Different providers will take different conditions into account so whilst one might not take your personal situation into account, it’s still worth shopping around to see if others will.

You will lose any tax-free entitlement if you don't take advantage of the maximum 25% tax-free cash available to you when you buy your annuity.

Your employer sets your scheme retirement age but you don't have to start taking your money when you reach this. You're free to access your pension pot from age 55 without giving up work.

You and your employer can continue to make contributions but a tax charge will apply if the total of all contributions exceeds your Annual Allowance  . If you do start to access your pension pot, in some cases your annual allowance may reduce to £4,000.

We will write to you several months before your scheme retirement date to outline your options.

Alternatively, from age 55 you can request a retirement pack to start planning. Use our Retirement Planner  to explore your options further.

When considering all your options, you'll need to think about:

Cash or income:

  • Any money you take from your pot, excluding any tax-free cash, will be added to other taxable income you receive during that tax year to determine what income tax you'll need to pay. Taking or drawing down large amounts of cash or income from your pot may push you into a higher tax bracket and could also affect your entitlement to certain State benefits. If you can, it might be worth considering spreading the withdrawals over more than one tax year as this may limit the tax you pay. You should also familiarise yourself with tax band and State benefit qualifying criteria to avoid withdrawals taking you over these limits, particularly if you're still working. You'll need to fully understand the tax implications of these options and any impact they may have.
  • The law and tax rates relating to pensions may change in future.
  • It's important to consider how many years you're likely to need an income for as your pot may run out before you die.
  • If you take any cash or an income from your pension pot other than your tax-free cash entitlement, your Annual Allowance may reduce to £10,000. This means any new contributions you or your employer pays into a pension plan over this allowance will be subject to a tax charge (this is of particular importance if you are 55 or over for example and still contributing to your pot).
  • If taking cash you can take up to three small pots of £10,000 or less in full from workplace or individual, personal or stakeholder pension schemes without reducing your annual allowance. For other workplace pension schemes there may be no limit to the number of small pots you can take without reducing your annual allowance - but you'll need to check this with your employer, scheme trustees or pension provider.
  • If you die before the age of 75 your pension pot can be paid as an income or as a cash lump sum, tax-free, to your beneficiaries. After age 75, your pot can be paid as an income or lump sum subject to the beneficiary’s marginal rate of tax.(2017/2018).

Annuity:

  • An annuity provides you with the certainty of a regular guaranteed income for the rest of your life (however long) or for a fixed term.
  • Income offers can vary significantly. You should shop around for the best deal.
  • 25% of any amount selected to buy your annuity can be taken as tax-free cash. If you don't take this at the start of the plan, you won't be able to take this later.
  • Once you've bought your annuity you can't change your mind or the options you selected at outset, even if your circumstances change.
  • For lifetime annuities, total income from your annuity may be less than you paid for it if you die younger than expected. Income will stop being paid when you die unless you have added beneficiaries to your annuity, or you have bought a guarantee period. If you live longer than expected, the total income you receive may be more than you paid for your annuity.
  • You can add a payment guarantee period or beneficiaries to your annuity (at a cost) to help ensure income continues to be paid after your death. Income paid to beneficiaries from a joint life annuity will be paid tax-free if you die before age 75, but will be taxed at the beneficiaries marginal rate after 75.

When to start accessing your pot

The earlier you choose to access your pot, the smaller your potential fund and income may be for later in life. This could have a significant effect on the amount of income available to you, meaning it may be less than it could have been and it could run out much earlier than expected.

If you choose to take a cash lump sum, regular or occasional income directly from your pension pot, these will not provide you with a guaranteed income for life in the same way that a lifetime annuity can.

How your pension pot is invested

Your workplace scheme may have a default investment option for its members, but you can choose how the money in your pot is invested. You can:

  • Move ('switch') your existing pot into the fund or funds you want.
  • Change ('redirect') how any future contributions are invested.

Investment funds have different levels of risk and potential reward. A fund you're invested in while trying to grow your pension pot may not be appropriate as you get closer to accessing it.

Managing your pension

Manage Your Account  is a user-friendly online service designed specifically to help in the years leading up to retirement. Allowing you to see how your pot is currently invested and performing, you can also find out more about the funds available to you and make changes to your investments.

Retirement Planner

Our interactive Retirement Planner  has an Attitude to Risk tool that helps identify the profile that most closely matches your attitude to investment risk. This profile can then be used as a guide for selecting an appropriate investment strategy.

You can shop around to find the most suitable provider and transfer some or all of your pension pot to one or more providers. Different providers will offer different options, features, rates of payment, qualifying criteria and charges.

In addition to the free guidance offered by Pension Wise, the Money Advice Service has produced a guide, Your pension - It's time to choose that covers your options, how to shop around and provides other sources of useful information.

If you're still unsure about your options we recommend speaking to a financial adviser. You can find one in your local area by visiting Unbiased. Please note: advisers will usually charge a fee for their service.

cash family challenge

Peter Cash

Learn about pensions, investments and managing your finances with our fun and interactive Cash Family Challenges.

Find out more about Pension Freedoms  with Peter Cash, who is considering accessing his pension pot.




Compare your options

Take a look at your options side by side to see how you could take cash or an income:

cash Lump sumFlexi-access Drawdownbuy an Annuity
Can 25% be taken tax free? Yes Yes Yes
What's taxable? 75% of any sum you take Income you take from your pot Income you take from your annuity
Can I leave my pension pot to someone? *Money left in your pot can be passed on *Money left in your pot can be passed on

When buying an annuity you can select additional options at a cost which will allow income to be paid after you die to:

  • Spouse
  • Registered Civil Partner
  • Financially dependent partner
Watch out for You may pay a higher rate of tax if you take out large amounts You need to review your pension pot regularly so you know how much income you can take and make it last as long as possible There are different types of annuities - make sure you buy the right one for your circumstances

*If you die before 75 your remaining pot can be paid tax-free. If you die after 75, your remaining pot will be taxed at the receiving beneficiary’s marginal tax rate irrespective of whether the beneficiary takes it as a lump sum or as regular income (2017/2018).

Not all options are available under all schemes. You can check your scheme with your employer, scheme trustees or pension provider.

You have the right to transfer some or all of your pension pot to one or more providers, so it's worth shopping around. Different providers offer different options, features, rates of payment, qualifying criteria and charges.
 

When you're ready to access your pension pot with legal & General

Even if you haven't decided which option to choose, whenever you're ready to access your workplace pension pot with Legal & General please contact us for your options pack. This will provide you with more information including your right to shop around and the necessary request forms for you to complete to tell us what you want to do. You will automatically be sent an options pack approximately four months before your scheme (or selected) retirement date.

Free, impartial guidance

Retirement Planner

See your options in retirement and find out your likely retirement income based on your current savings levels.

See if you're on track to fund the retirement you want.  

Useful links

Manage Your Account

Get the most from your pension or savings and register or log in to Manage Your Account today.