7 What can I do with my pension when I retire?
When you reach 55 you can withdraw (or ‘drawdown’) up to 25% of your pension pot tax-free. This has been the case for several years. Note, though, that the age that this can be done is scheduled to rise to 57 years in 2028.
What has changed more recently is what you can do with the rest. People retiring with defined contribution scheme pensions before April 2015 had few options other than to convert their remaining pension funds into an annuity. This is where you give your pot to an insurance company and in return you get an income – in most cases for the rest of your life.
In effect, this is insurance against living for longer than your pension pot would otherwise last. However, the annuity provider will take a slice of the pension pot in charges before what remains is turned into income.
In April 2015, however, the options for using accumulated pension funds available to those on defined contribution schemes changed radically as a result of new government legislation, and you now have more freedom. These reforms and their impact are examined next.