Your pension options at 55

Just because it’s an option, there’s no obligation to take any cash out or start drawing an income at 55.

If you want to – and especially if you’re still working – you can continue paying into your pension and making the most of the generous tax benefits.

If you’re not working, you can still pay a total of £3,600 gross a year into a pension scheme and qualify to have tax relief added to contributions. This means that, with the present tax rate, you would make a net payment of £2,880 and have £720 added in tax relief.

If you’ve got big plans, like paying off your mortgage or investing in property, you could cash in your entire pension.

The first 25% will be tax-free, while the remaining 75% will be added to your other income sources in that year – and taxed accordingly. So if you’re withdrawing a significant amount or still earning at the same time, you could easily be pushed up a tax bracket.

Please note if you draw an income and want to continue paying into your pension, the amount you can contribute will be reduced.

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Normally, the first 25% lump sum you withdraw will be tax-free. You’ll need to do your research to decide what’s best to do with the remainder.

If you don’t need as much as 25% of your total fund, you could take out some cash tax-free – giving what’s left more time to potentially benefit from investment growth.

Alternatively, you could take out more than 25% as a lump sum, but you’ll need to pay tax on it.

If you don’t need cash immediately, think about how you’ll use your pension to provide yourself with an income.

A traditional annuity gives you the security of knowing how much you’ll receive each year for the rest of your life, but it’s crucial to think carefully about the type you need and shop around for the best rates.

Alternatively, ‘flexi-access drawdown’ gives you greater control over your money because you can take an income as and when you need it, while leaving your pension invested so it has the possibility of growing. As with any investment, there’s always a risk you could get back less than you started with. And if you take too much out of your pension pot, there’s also the risk that you could run out of money before you die.