If you can afford to leave your pension invested, while not guaranteed, it is more likely to lead to a higher retirement income, especially if you’re still working and contributing.
Why could leaving it for now be a good thing?
If you have another source of income or want to support others after you’re gone then leaving your pension invested could be the right choice for you. Leaving your pension invested offers a range of possibilities and we’ll help you understand your options. Here are some of the advantages of leaving it for now:
Stay flexible – You can keep your options open. If you don’t need the money now you can leave your pot invested and take it later.
Top-up your pension pot – By continuing to pay into your pension. You’ll get tax benefits on any payment you make and if you’re 55 (may be subject to change) or over you’ll be able to access your money any time.
Support family – When you die, any pot which remains can be passed on. Who receives it is at the discretion of Standard Life. You can let us know who you would like to be considered by completing an Expression of Wish form. Your wishes will be taken into account, but they will not be binding. As the payment is a discretionary one, it is normally paid free of inheritance tax.
- If you die before age 75, payments out will normally be free of income tax
- If you die after age 75, payments out will normally be charged income tax at the beneficiary's marginal rate
Stay invested – Your pension pot will have the opportunity to grow. You could benefit from potential future, tax-efficient growth. This isn’t guaranteed.
The value of your investment can go down as well as up and may be worth less than what was paid in.
What do I need to think about?
Another source of income – If you choose to defer your pension, you’ll need to carry on working or have other sources of income. You won’t be able to enjoy your retirement income straight away.
No guarantees – If you choose to keep your money invested, you need to remember that your investments may not perform as well as you expect them to – they can go down as well as up in value. Charges continue to be deducted and could reduce your pot. You could get back less.
Flexible income, or drawdown, gives you the freedom to choose your own level of income and the flexibility to suit your personal needs.What is flexible income?
Fixed income, or an annuity, is a guaranteed income for life. It’s easy to set up with no fuss after that.What is fixed income?
When you do want to take income or a cash withdrawal make sure you can do so whenever you like – some providers only let you make withdrawals once a month.
Look for investments specially designed for this stage of your life. Make sure you understand the investment risk associated with keeping your pot invested.
You’ll need to regularly review your investments and be more hands-on as you approach retirement – if you don’t already have an adviser make sure the provider offers the help you need. It’s a good idea to seek appropriate guidance or advice to understand your options at retirement. You will have access to the Government’s free impartial Pension Wise guidance service provided through Citizen’s Advice or The Pensions Advisory Service. This guidance can be accessed on the internet, by telephone or face to face. Their contact details can be found on the Contact us pages in the links provided.
Review the charges carefully and make sure your provider explains these to you in detail.
To sum up
Tax rules and legislation can change. Any information given is based on our understanding of law and current HM Revenue & Customs practice, as at April 2021. Your own circumstances including where you live in the UK also have an impact on tax treatment.
The information provided here should not be regarded as financial advice. If you are unsure you should speak to a financial adviser. There’s likely to be a cost for this.
Are you approaching retirement?
Access to impartial guidance
We recommend you seek appropriate guidance or advice to understand your options at retirement. You can get free guidance over the phone or face to face with Pensionwise.
The Money Advice Service (MAS) guide is also available on the Pensionwise site.
Retirement pathfinder tool
A quick and easy way to give you a snapshot of your options.