How do you withdraw your pension?

[Autumnisintheair]

We were talking with Wealth Manager and he said we should not do annuities as it gets loss when the person pass away.

Do you just transfer to an account and start drawing down?

You should keep the lump sum invested in your pension so it continues to grow even as you’re drawing down. Have you had proper financial advice?

You draw it directly from the pension and leave the rest invested. Whatever you do, don't draw down one lump sum to last you all year (right at the start of the tax year) as you will have to wait until the next tax year to get your tax back.

You just contact the pension provider usually online, prove your identity and address and it is reasonably quick.

You need advice, start with PensionWise, you can get a lot online. You need to work out what type of pension you have, broadly if you have worked for the NHS the rules will be different to if you worked for a company that contributed..
If it is a company pension and once you have taken advice, you contact them and they will do the paperwork with you.

i retired earlier this year, took 25% of my pension pot as a tax free lump sum, and am drawing down a monthly amount (which is taxable) from the remainder.

Thank you all; that is very helpful. I am still a few years of retirement but planning in advance 😅

And you contact them every time you need to withdraw money? Do they just transfer it to your bank account?

I only have a small pension which I drawdown from, my main pension is DB but if I want to drawdown any I can't seem to be able to do it online, I have to ring them up which seems to take about half an hour on the phone going though all the do you really want this money and stuff like that. Then they send me a load of stuff online repeating all of this. I eventually get the money. Hopefully your pension provider will be easier to deal with than mine, it's all quite onerous.

Seems like a hassle 😅

I imagine you first take the 25% free of tax and you start drawing down when that runs out.

What did you do with the 25% tax free sum?

i put it in savings, bought a car, getting some house repairs done. It’s good to have savings..

Annuities aren't necessarily bad for all - the plus side is it's a guaranteed income for life, with no fear of your pot running out, The downside is, as the 'Wealth Advisor' said, that there is no money left to leave people when you die.

but then the whole point of a pension is / should be to fund your own retirement, not to provide an inheritance for your descendants.....

Not necessarily. You can add a dependant to your annuity which will mean you take less per month, but if you die within 10yrs of taking it, your dependant can continue drawing from the pension pot. If you die after 10yrs, your dependant can't. It's a gamble.

Personally I would look into a flexi access drawdown. You can take your TFC and do whatever you want with that lump sum. Or you can take out a little TFC and go back for more as and when you want to. When the tax free element has eradicated, then you will pay tax on each lump sum or regular income you take from there on in.

Lots of different ways, depending what type of pension you have and what you want from.your money. DB pensions have choices about size of lump sum. DC pensions can be used for an annuity (options for guaranteed money back if you die, or for payments to dependents - which don't necessarily run out after 10 years! - and for different levels of inflation protection), limited term or for life. Or you can go for flexi access drawdown or UFPLS. Annually, monthly, whatever other interval you choose. Set regular amounts, or draw down only as needed. Take your tax free portion all at once or spread it over each payment...

If you have a wealth manager, they should be able to explain all the options and the pros and cons of each. If they can't, get a new wealth manager.

I'm interested in the best providers for drawdown. Currently have a lot of my pension with Fidelity.

you can have some in flexi drawdown and some in an annuity. Depends how well you sleep at night having a lot invested in stocks and shares. You can wait for better annuity rates and use some money for an annuity. I think this is more attractive now that unused pensions will be subject to inheritance tax from 2027. As far as the 25% tax free lump sum if you have debt you can pay it off (e.g. mortgage) and if not treat yourself, upgrade your house and put the rest into ISAs. Be wary of expensive “wealth” managers charging a lot to tell you what you can find out for free on the internet or via Pensionwise.

I have two pensions, a DB and a DC.

The DB I started drawing at 57 (retired early), the 25% TFLS is invested and the (automatic) monthly payments form the bulk of my income with annual increases based on inflation & cost of living.

The DC I started drawing a couple of years later. Again I took the 25% TFLS (which is invested) and I take a monthly pension which is paid automatically but if I want it increased, I have to contact my pension provider.
I have based my DC pension drawdown on the value of the SP but at the moment, my fund is projected to last into my 70's so there could possibly be an overlap but only time will tell.

No otherwise you will loose your annual tax allowance (£12.5k approx).
If you draw an annual pension below your tax allowance then you will pay no tax that year, if you need more money just dip into your TFLS.

Many companies (especially bigger ones) offer pension advice, usually provided by an external company.
Mine was excellent giving annual 1:1 meetings right up until 12-months after I left (time to get settled into the new way of life) but from then on they wanted to "manage" my DC pension (for a fee of course) so I declined.

i retired earlier this year, took 25% of my pension pot as a tax free lump sum, and am drawing down a monthly amount (which is taxable) from the remainder.

@Yddraigoldragon - or anyone else who has taken the tax free lump sum - how long did the process take, and was there a lot of paperwork involved?

If I recall correctly my DC took about 3-months (but I started the process early so it coincided with my 57th birthday) and my DC only a couple of weeks.

You need a few years income in cash or short term money market funds, which you get by selling some investments- this should be done over a few years preceeding retirement.
Then you either replenish by selling whenever markets are high or you have income/dividends from the investments that replenish the pot, or you build a collapsing Gilt ladder to provide income annually.
What you don’t do is have no plan and then cry when there is a market crash and you have no buffer.
The alternative is a fixed term annuity with 100% spouse cover where you get the capital back after 5/10 years.

I'm pretty sure that most people don't do anything this complicated.

How else do they draw an income?

You have to sell some investments to cash in order to draw down your pension, unless you have a high level of dividends being paid out - how many people understand the difference between acc and inc funds?
Only an idiot would leave it until they actually need the cash, the markets could crash just before you need to sell.
If you instruct your pension company to sell enough funds to cover your income / for an UFPLS payment etc. they will simply sell equal percentages of each fund you hold, unimportant if you only hold one fund, like a lifestrategy one but say you have 3 or 4 funds and one has outperformed the others by a country mile, you would want to sell more of that fund to keep a balanced portfolio.

It was a couple of months, I had a few pots to amalgamate first, once that was done it was smooth. There is a lot of legal framework around pensions, so the companies will require you to sign off on actions, but it’s all online and they will guide you through.

We have a variety of pots, a good spread. Some of the pot already used for an annuity, and spouse gets on death. Some taken as tax free lump. Still a balance left there to take. Some still invested. Some in stock isas, some in cash accounts. We won't get state pensions for another several years, so we are keeping things flexible. No mortgage costs to worry about, very low outgoings, we don't spend much, mostly food and wine and fast cars 😅