Saving for retirement is essential. But, knowing how much exactly you need is a bit difficult. However, individuals should start saving for retirement as early as possible. If a person saves into defined contribution pension plans when working, they should decide how they want to use their savings once they retire.
A pension pot is the sum of all the contributions, you and or your employer have made since you started saving for your retirement. Depending on how your scheme was set up, this pot can also include any capital growth from investments. However, it doesn’t include one’s State pension.
Usually, providers send their customers a statement showing how much money is in their pot. However, some also update this information online. Pensioners who save in multiple schemes should contact each of them separately for this information.
Can I Withdraw Money from My Pension Pot at Any Time?
No. There is a minimum age requirement that one must reach. For many providers, this age limit is usually 55 years. But for someone who is retiring due to health reasons or disability, they may be allowed to withdraw their pensions earlier. But that depends on the rules of your pension scheme.
What Can I Do with My Pot?
Individuals have the freedom of deciding what they should do with their pension money. However, for those who need advice, here are ways they can use their pots wisely.
Invest in adjustable income- one can decide on investing their pots to give them a regular income. You have the freedom of choosing how much you’ll take as well as how long it’ll last.
Leave it untouched- It’s not a must that you immediately start withdrawing your money after retirement. If you have another source of income, you can leave your pot invested until you need it most.
Take money in bits- don’t withdraw everything from your pot. Instead, take your money out in small portions until it runs out. But you can also take your entire pot and leave. The decision is yours.
Consider guaranteed income annuity- here individuals use their pots to buy an insurance which guarantees them an income for as long as they live.
When deciding what you should do with your pot, consider your lifestyle, family or partner, age, life expectancy, etc. Therefore, one should take their time and think of the best ways to use their pensions. You can even speak with a financial advisor for recommendations.
More about Lump Sums
Some people decide to take their entire pots at once. This is called a lump sum. While this can be an excellent option for some, there are things that individuals should consider with such withdrawals:
- High fees maybe charge for each withdrawal
- One may be limited on how many times they should make withdrawals
- Taxes may be high since only 25% of each withdrawal made is tax-free
Does Withdrawing Money from My Pot Affect My Benefits?
Yes. How one uses their pension pots can affect some benefits they’re enjoying now or their ability to be eligible for certain benefits in the future. Withdrawals or investments are considered as income and affect means-tested benefits which include:
- Housing benefit
- Income-based Jobseeker’s allowance and support
- Council tax support
- Pension Credit
If one is planning on taking money from their pension pots, it’s wise that they speak with the Department for Work and Pensions on which benefits might be affected and weigh out their options.