How to take your money

So you’re nearly there – exciting stuff. Next you have to decide the next step on your journey – how to take your money. This is a big decision, so it’s wise to choose carefully. Keep reading to find out more.

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Your options

Your normal retirement age for your IMI pension is 65, but you can take your pension any time from age 55 to 75.

In brief, you can:

  • Buy an annuity, which will provide you with an income for life (or over a set number of years).

  • Take all or part of your retirement savings in one or a few cash lump sums. Of this, 25% will usually be tax free, with the rest taxed as income.

  • Take a flexible income through a drawdown arrangement. You can use the IMI drawdown arrangement, where you can take 25% tax-free cash and spread the balance over a period of up to 10 years. Or you can transfer your account to a flexible income (drawdown) arrangement.

  • Choose a combination of these options. You can blend the different options to suit your particular needs and circumstances.

Want more detail? Read below:

You can buy an annuity from an external provider, which gives you the comfort and security of knowing that you’ll have a certain amount of income for the rest of your life.

You can tailor an annuity to suit. Just some of your options are:

  • An annuity that will provide a pension (usually a percentage of your pension) for a dependant after you die for the rest of their life.

  • An annuity that will increase each year to help it keep pace with inflation.

  • An enhanced annuity that will give you a higher level of income because you smoke or are in poor health.

If you buy an annuity, you can choose to receive your payments monthly, quarterly, half-yearly or yearly, and you can receive your payments at the beginning of the period (in advance) or at the end of the period (in arrears). You’ll pay tax on your payments, but not National Insurance.

You can take all or part of your savings in one or a few lump sums as and when you need it and until it runs out. 

The first 25% you take is tax-free. The rest is added to your other income and is taxable.

Your remaining money stays invested - this gives it the potential to grow, but investments can go up or down.

You might be charged each time you make a lump sum withdrawal and there might be limits on how many withdrawals you can make each year.

This is great if you want flexible access to your money. With drawdown:

  • Your retirement savings stay invested, so they’ll carry on earning investment returns. 

  • You take a regular taxable income when it suits you. 

  • You can flex the amount you take to match your needs, and can also take one-off taxable payments.

If you choose drawdown, you’ll need to make sure you have other savings to live on after your fixed period ends.

If you have a large balance and are looking for a more flexible or longer-term drawdown facility, you could consider transferring out to a specialist drawdown provider.

If you start to take your savings through a drawdown arrangement, you’ll have a lower Annual Allowance (known as the Money Purchase Annual Allowance), which will limit the amount that you can pay into other pensions in the future.


 

You can also choose a combination of these options. For example, you might choose to take some money flexibly to start with and then later buy an annuity to provide a guaranteed income. Everybody's situation is different, so how you combine the options is up to you.

Investing as you approach retirement

As you move ever closer to retirement, it can be a good idea to look at lower or more moderate risk investments. Moving from higher risk funds (equities) into lower risk ones (cash) can protect your pension savings, but obviously probably won’t grow your pot as much. If you’re not sure what’s best for you, you can get advice from an independent financial adviser.

If you invested in the Mercer Smartpaths lifestyle investments, you don’t need to do anything. From 8 years before retirement, they automatically and gradually move into investments designed to protect your pension savings. You can check your investments and how they’re performing in your MMT.

 

How you take your money is a big decision

And once you've made your choice, this usually cannot be reversed. Before you make any final decisions about your money, take advantage of all of the free help that's on offer to you. Money Helper has a free guidance service available called Pension Wise. It is also recommended that you seek financial advice.

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Money Helper

It’s a good idea to speak to an independent financial adviser so they can help you choose the right route for you. You can find one near you using Money Helper.

Money Helper

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Pension Wise

You can also check out Pension Wise, a free government service. You can make an appointment with a specialist, who will go through your options to help you understand the choices.

Pension Wise