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Retirement and later life

From age 55 you can choose how you want to access your pension. New rules since April 2015 give you much more flexibility and there are a number of options. It is an important decision and you will need enough money to last for your lifetime. The way we pay for care and support in later life is also changing, and insurance and long-term saving are part of the solution.

Find out more about:

RHS: Retirement market challenges & opportunities PDF

 Your retirement options

There are six options for accessing your pension. It is an important decision and it is always worth taking advice and guidance. The Government's free and impartial Pension Wise service will help you understand your options.

  • You can keep your pension pot where it is

You can delay taking money from your pension pot to allow you to consider your options. Reaching age 55 or the age you agreed with your pension provider to retire is not a deadline to act. Delaying taking your money may give your pension pot a chance to grow, but it could go down in value too.

  • You can get a guaranteed income for life

A lifelong, regular income (also known as an annuity) provides you with a guarantee that the income will last as long as you live. A quarter of your pension pot can usually be taken tax-free and any other payments will be taxed.

  • You can get a flexible retirement income

You can leave your money in your pension pot and take an income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. A quarter of your pension pot can usually be taken tax-free and any other withdrawals will be taxed whether you take them as income or as lump sums. You may need to move into a new pension plan to do this. You do not need to take an income.

  • You can take your whole pension pot in one go

You can take the whole amount as a single lump sum. A quarter of your pension pot can usually be taken tax-free – the rest will be taxed. You will need to plan how you will provide an income for the rest of your retirement.

  • You can take your pension pot as a number of lump sums

You can leave your money in your pension pot and take lump sums from it as and when you need, until your money runs out or you choose another option. You can decide when and how much to take out. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. Each time you take a lump sum, normally a quarter of it is tax-free and the rest will be taxed. You may need to move into a new pension plan to do this.

  • You can choose more than one option and you can mix them

You can also choose to take your pension using a combination of some or all of the options over time or over your total pot. If you have more than one pot, you can use the different options for each pot. Some pension providers or advisers can offer you an option that combines a guaranteed income for life with a flexible income.

Pension scams and investment fraud

Pensions and investments are well regulated but some scams and suspicious schemes try to target savers. These unregulated schemes try to attract people with promises of unrealistic guaranteed returns or other features like being able to access some or all of your pension earlier.

There will often be an introducer, who is not a regulated financial adviser, who encourages you to put money or transfer a pension into an investment or a pension scheme invested in unusual assets, often based overseas.

What’s the catch?

  • Administrative cost and fees charged can be very high.
  • You will not have the same rights as with a pension regulated by the Financial Conduct Authority, like being able to complain to the Financial Ombudsman Service or access the Financial Services Compensation Scheme.
  • Taking money out of your pension before age 55 is likely to be an ‘unauthorised payment’, because it goes against the tax rules set by the Government. You could be presented with a tax bill of up to 55 per cent of the pension that you transferred, including the amount you have already paid to the transferring company in fees.
  • You may also be charged penalties and interest by HMRC if you do not tell them that you have released your pension.
  • Some of the investments associated with these schemes are very risky and may be difficult or impossible to cash in, leading to you lose all or a large part of your pension.

What to look out for:

  • Unsolicited phone calls or text messages.
  • A company which claims to be exploiting ‘legal loopholes’.
  • Transfers to an overseas pension scheme or fund.
  • A company which offers to help you access your pension before age 55.
  • The offer of a ‘cash bonus’ loans against your pension or ‘cash back’ offers.
  • Schemes that offer an unrealistic high rate of return. 

What should you do?

If you are considering transferring your pension, it’s always a good idea to seek independent advice. A financial adviser regulated by the FCA will be able to go through your options with you and explain any potential risks.

Citizens Advice or The Money Advice Service may be able to help if you are experiencing financial difficulties.

If you think that you might have been the target of fraud, contact the Action Fraud service on 0300 123 2040. The FCA’s ScamSmart website for information about the risk of investment scams.

What do pension providers do to stop fraud?

ABI members are taking a strong stance against pension scams and illegitimate pension schemes. Our members take a number of steps to do this including conducting research on schemes before they make a transfer; helping customers understand the risks involved; and working with the Government, regulators and counter-fraud authorities to combat scams and illegitimate schemes.

Where professional trustees have been appointed to take over illegitimate schemes they will need time to try to recover funds. Where any remaining funds are recovered, we believe they should be transferred to a legitimate pension scheme of the customer’s choice, where possible.

ABI members help to combat pension scams and illegitimate schemes by:

  • Research on schemes before making a transfer

When a customer requests to transfer their pension to another scheme, ABI members have checks and controls in place to consider the legitimacy of the receiving scheme before making the transfer. If the provider is not satisfied about the legitimacy of the scheme, they may decide not to transfer the funds at all. We welcome the Code of Good Practice developed to help providers and trustees with these decisions.

  • Helping customers to understand the risks

Where ABI members identify concerns with a proposed transfer they set out the risks that customers face. Our members welcome the customer information provided by the Pensions Regulator and the FCA and use these when appropriate with customers.

If customers require impartial guidance, members will direct them towards The Pension Advisory Service (TPAS).

  • Working with the authorities

ABI members report suspicious transfer requests to the enforcement agencies and have been encouraging regulators and Government to close down illegitimate pension schemes and prevent new ones from emerging. We welcome the measures taken and proposed by the Government.

More could still be done. For example, intelligence sharing between the authorities and industry could be improved; the Government could be proactive in its use of the ‘fit and proper’ test; a professional trustee could be mandated for small schemes with self-management of assets; and it is still not completely clear when a pension provider can block a transfer. All parties will need to remain vigilant and continue to combat new types of scam and illegitimate pension scheme.

Social care

The way we pay for care and support in later life is changing, and more people will need care in future.

State benefits can provide some help, but may not be enough or may not pay for the full cost of long term care. The level of state support you receive can be different depending on whether you live in England, Wales, Scotland or Northern Ireland.

Insurance and long-term savings are part of the solution.

  • Immediate needs annuities pay a guaranteed income for life to help cover the cost of care fees in exchange for a one-off lump sum payment, if you have care needs now.
  • Some life insurance products will pay out when you have a care need, which gives you the option of insuring your future care needs before they develop. 
  • If your pension savings are sufficient, they can be used to cover some of the costs of care.
  • Equity release plans give you the ability to get a cash lump sum or an income, as a loan secured on your home – these can be used if you are looking to fund a care plan now or in the near future.

For more information:

Your local authority has a duty to provide information, advice and guidance about care.

Visit the Money Advice Service for information about paying for care: www.moneyadviceservice.org.uk/en/categories/paying-for-care

Find a financial adviser who specialises in later life: https://societyoflaterlifeadvisers.co.uk/