How can I crystallise my pension savings?
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I am due to retire next year and will start to draw on my personal pension fund. It’s currently worth about £450,000. I understand that I can draw up to a quarter of the value of the fund free of tax but don’t want to do that at this stage as my wife will still be working. However, I foresee needing to take a cash sum in five years when she retires, as we plan to buy a new home nearer the coast. Can I delay taking the tax-free cash?
Phil Beck of Smith & Pinching responds:
The answer to this question will depend on the income route you are proposing to adopt when you retire. Essentially you can “crystallise” your pension fund from the age of 55. A personal pension becomes a crystallised pension when you start taking your retirement benefits from it – although a plan can usually be crystallised in stages. While there are other options, there are two principal ways of crystallising your pension savings.
First, you could purchase an annuity – a guaranteed income for life. In this instance, you are crystallising your fund when you make the purchase and you take your tax-free lump sum entitlement when you buy your annuity.
The second option is to enter into income drawdown. This is a contract with a pension provider that allows you to draw directly from your fund, leaving the remainder invested. With this option, you don’t have to crystallise the whole fund at the outset. This will allow you to make withdrawals both now and in the future. Depending on the provider, you may be able to delay tax-free cash withdrawals, too.
I recommend you talk your plans through with an independent financial adviser to make sure that your retirement plans provide you with the opportunities you want, when you want them. We can use lifetime cashflow planning tools to show you how your pension fund can be accessed to give you the flexibility you are looking for.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk
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