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Guide to taking your pension

Guide to taking your pension

Annuity is no longer your only option with pension freedom

April 2015 saw the most radical changes to private pensions for a generation as the new Pension Freedom rules came into effect.


Before, most people had to use their pension pots to buy an annuity. Now, anyone 55 and over can take the whole amount as a lump sum, paying no tax on the first 25% and income tax on the rest. More choice – great. But it also means it’s easier to make a mistake.

This is the first incarnation of this guide. Please make any suggestions in the forum. 

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Who's this guide for?

Our detailed 40-page PDF guide takes you step-by-step through how it works, whether income drawdown or annuties win, the tax situation and more. 

This guide is for anyone considering using the money saved in their private or company pension – which usually, though doesn't always, relate to retiring. If you're eager to get to grips with the options but don't have much time, read Martin's five-minute briefing.

This guide isn't about saving into a pension or finding the best pension provider, nor is it about the state pension – if that's what you're after, see our Pension need-to-knows.

Martin Lewis has warned pension savers they could lose £1,000s, or even £10,000s, from their pension by falling foul of a trap that sees withdrawals taxed. Watch Martin's video explainer, courtesy of ITV's The Martin Lewis Money Show.

MoneySavingExpert.com founder Martin Lewis explains how taking money out of your pension could cost you thousands in tax
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What's in the guide?

If you want a sneak peek before reading the whole thing, here's a quick breakdown and intro for each section of the guide...

Chapter 1: Take the long view

This chapter encourages you to think about all the things that will affect when you take your pension, including thinking about how long you will live and what your incomings and outgoings will be as you get older.

Chapter 2: Taking your pension money – an introduction

Here we explain the different types of pensions that you might have and help you if you think you may have lost track of any pensions over the years. We'll also give you an overview of the options you have when deciding what to do with your pension, explained in detail in the subsequent chapters in the guide.

Chapter 3: You can leave it all in your pension

This is likely to be default holding position for most people until they are ready to take their pension money. But you need to be careful you don't get penalised for leaving your money where it is.

Chapter 4: You can take lump sums, leaving the rest in your pension

This is one of the main new options that was introduced under new pension freedom rules that came into force in April 2015. This chapter will help you understand exactly how this option works, what charges you will be hit with, what the tax situation is and what happens to the money in your pension if you die.

Chapter 5: You can take 25% tax-free, then go into income drawdown

With this option, you move all of your pension money into a new product, called income drawdown. This chapter will help you understand exactly how to do that, how it works, what the charges are and how much of your money you should be using as an income.

Chapter 6: You can take 25% tax-free, then buy an annuity

Annuities - an income for life in exchange for your pension pot - have a bad reputation, but they will still be a good option for many. However, how much you get is down to many factors including the Bank of England base rate, so it'll pay to compare rates on offer between providers. This chapter walks you through all the different types of annuities available, helps ensure you get the best rate and explains what happens to the money when you die.

Chapter 7: Getting help with your decision

Deciding how to turn your pension pot into an income for the rest of your life is one of the most important decisions you will ever make. In this chapter, we talk you through the help that is available and when it's worth enlisting the help of an independent financial adviser.

Chapter 8: FAQs

From finding out whether withdrawing your pension will affect any benefits you receive to how to avoid pension fraudsters, in this chapter we run through some of your most common questions about taking your pension.

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