Take Pension Benefits After The Age Of 55
Any investor who has taken advantage of tax relief and investment growth to accumulate a pension fund will want to make the best decision on retirement.
SIPP investors, like other personal pension savers, can take pension benefits after the age of 55. There is no upper age by which you have to take retirement benefits and therefore no requirement to take retirement benefits at all should you wish to keep your pension invested.
When you take benefits from a SIPP, you can normally take up to 25% of your fund as tax free cash. The rest must be made available to provide a taxable income. You can either use the remaining fund to buy a lifetime annuity which pays a secure income for at least the rest of your life or it can be made available to provide a taxable income directly from your SIPP.
This allows you take your tax free cash and keep the fund invested, while drawing an income directly from your fund. With a drawdown plan your fund is still invested, and therefore will suffer the volatility of markets. As any income withdrawals and charges will be a drain on the funds, so income drawdown is usually suggested only for those with large funds (over £100,000) or other sources of income. It is certainly a riskier option than an annuity. Poor investment performance or large income withdrawals can quickly erode your fund’s value. In a worst case scenario this could completely deplete your fund leaving you reliant on other sources of income.
Remember, once in retirement you are unlikely to have the ability to earn money to make up for losses. One way to use income drawdown is to just take the natural yield of the underlying investment.
If you die while in drawdown the remaining money can be used to provide an income for your dependants or paid as a lump sum to your nominated beneficiary less a 55% tax charge. Unless you are in flexible drawdown the government restricts the amount of income to broadly the same as the income from an annuity. There is no minimum income that must be taken. If you wish to continue contributions once you are in drawdown then there may be further restrictions. This is a complex subject on which we suggest you take advice.
How Do I Take Benefits From A SIPP