IMI Pensions UK - Retirement - Retirement options

When it comes to taking your retirement savings, you have a number of options. The main options are:

Use your RSP account to buy an annuity, which will provide you with an income for life (or over a fixed number of years).
Take your whole RSP account as cash over one or two years (the first 25% would be tax free).
Take a flexible income through a drawdown arrangement. You can use the IMI RSP drawdown arrangement, where you can take 25% tax-free cash and spread the balance over a period of up to 10 years. Alternatively, you can transfer your RSP account to a flexible income (drawdown) arrangement.

You can also take a combination of these options. For example, you could take up to 25% of your account value as tax-free cash and use the remaining balance to provide an income through an annuity or drawdown.

As this is a complex decision, you should seek independent financial advice before deciding which option is right for you.

Annuity

If you want the security of knowing that you will have a certain amount of income for the rest of your life, like a traditional pension, you can use the money in your account to buy an annuity from an external provider.

You can tailor an annuity to suit your needs. Some of the options you can choose 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 includes a guarantee for five or ten years (so the first five or ten years’ payments will be your dependants if you die within five years of starting to take your pension).
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.

Generally, the more options you choose, the lower the amount of starting pension you will receive.

When will I get paid?

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 will pay tax on your payments, but not National Insurance.

Cash

You can take up to 25% of the value of your account as a lump sum of money to spend or invest.

If you do this, you will have less money left in your account to use to provide an income, but it means that you will pay less tax than if you were to use the whole of your account to buy an annuity.

You can take more than 25% of the value of your account as cash, but you will pay income tax on anything above 25%.

If you want to take your whole account as cash, you can do this over one or two years. Depending on how much cash you take, you may pay less tax if you take it as cash over two years.

If you take more than 25% of the value of your account as cash, you will have a lower Annual Allowance (known as the Money Purchase Annual Allowance), which will limit the amount that you can pay into other pension accounts in the future.

Drawdown

You can invest your account in a ‘flexi-access drawdown’ product, such as the IMI RSP drawdown arrangement. This allows you to withdraw your account over a fixed period of up to 5 years.

Your pot of money will still be invested, so it will continue to earn investment returns.

If you choose this option, you will 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 will have a lower Annual Allowance (known as the Money Purchase Annual Allowance), which will limit the amount that you can pay into other pension accounts in the future.