Planning for Retirement – Your Options

Planning for Retirement – Your Options

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When you get to the age of 50 (or 55 from 6 April 2010) you can take benefits from your SIPP. Traditionally, you would take 25% of the value of the fund and use the remaining 75% to purchase a pension annuity. Pension annuities, once purchased, mean you lose access to your pension fund, they then provide an income for the rest of your life.

Unsecured Pension (USP)

An Unsecured Pension (USP), often known as drawdown, provides you with an income and still leaves you with access to your pension. The funds remain invested, so you’re still in control of your investments BUT there is a risk that if the income being taken is combined with poor investment performance then the fund will decline and so will the income you can draw from it.

The maximum income that can be taken is 120% of the equivalent pension annuity, there is no minimum income requirement so it can be set at zero. On your death it can be used to fund an income for your dependents or paid out as a lump sum (less a 25% tax charge) to a nominated beneficiary. A USP can be used up to the age of 75 when you either have to buy a pension annuity or move into an Alternatively Secured Pension (ASP).

Alternatively Secured Pension (ASP)

ASP does not pay out tax free cash. The income has to be between 55-90% of Government Actuary Department limits (so, unlike USP, it cannot be set at zero). If someone dies in ASP and they have dependents then the fund must be used to provide a survivors pension which is subject to income tax. If a member has no dependants then the remaining fund can be paid to a nominated charity, tax free.

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