I already draw a pension - do the pension reforms allow me to cash it in?

admin
25 August 2015

Q

I have been drawing a monthly pension of £220 from my occupational pension for some time. At 67 years old, I'm now wondering how the new pension freedoms affect me. Would I be able to withdraw my remaining pension as a lump sum?
From
MH/Tideswell

A

Most of the new freedoms affect people who haven't yet taken their pension benefits. However, depending on the type of occupational pension scheme you have, you might be able to take advantage of prospective rules.

If you have a defined benefit pension scheme, such as a final salary scheme, then any changes won't affect you. Your pension is likely to be competitive and you should continue to draw income as you do now.

If you were a member of a group personal pension scheme and you bought an annuity, then you could have more options.The government is keen that people who have bought annuities are able to withdraw their money and have launched a consultation to look at this. However, new rules aren't likely to come in until next April at the earliest.

Even if you are able to cash in your annuity for a lump sum, it isn't necessarily a good idea. Your annuity gives you a guaranteed income for life. Cash it in and you might get a worse deal, a big tax bill and you then have to find a way to generate an income out of your lump sum.

However, there could be advantages in cashing in your annuity: it might be easier to gift this amount to somebody else or to pass it on when you die. But, for most people, it is likely that the downsides of cashing in their annuity would outweigh the benefits.

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