After the age of 55, a member is entitled to use the pension fund to provide benefits.
A member is allowed to withdraw up to 25% of the pension fund, subject to the Lifetime Allowance, as a tax-free Pension Commencement Lump Sum, and then have the residual fund value to provide an income.
The traditional route with the residual fund is to buy an annuity. A SIPP provides income through Income Drawdown, which allows your investment to remain invested. You choose how much or little income you wish to withdraw each year (within prescribed limits) and to leave any pension pot which has not been extinguished, as a lump sum to nominated beneficiaries, after the deduction of the relevant taxes on special death lump sums, which currently stand at 55%, or as a Dependent’s Pension, transferred onto the dependent, or into their own pension fund.
Things you should note:
- Income Drawdown may deplete your pension funds quickly and should be reviewed at least on an annual basis with your financial adviser
- If you take your Pension Commencement Lump Sum or draw down your pension fund after 6th April 2011, you will be subject to a 3 yearly income limit review. If you drew down your pension fund before this date, you will become subject the 3 yearly reviews after your next pension review
- The tax rules and legislation is, of course, liable to change and this information is based on our current understanding of the law and HM Revenue & Customs practices.