Leaving your pension invested
There’s a great deal of flexibility about how you take an income from your retirement savings. One option is to delay taking money from your pension until the time is right for you.
Retirement means different things to different people. Some may choose to stop working completely, but others may decide to reduce their hours, take on occasional projects or move into a new career in an area that they find interesting. Our Global Retirement Survey shows that over half of people aged 55 to 75 plan to work at least part time into their seventies1.
This is why we think that approaching retirement shouldn’t be seen as a deadline. You can take the time to make a decision – and then be sure that you’re using your money in the way that’s right for you.
Three reasons to leave your money invested
You might be making enough money from working to not need your pension right now or you could simply have other assets you’d prefer to draw on first. Either way, here are three reasons to consider leaving your pension invested for longer:
- It could give your savings more time to grow: Thanks to the effects of compounding, even a few extra years could mean significantly more money in your pension account – though, of course, it’s important to remember this is not guaranteed and investments can fall in value as well as rise.
- It means you won’t need the money for as long: If you can hold off using your money for a few years, you could then potentially take out more every year without worrying about it running out or buy an annuity at a later age that pays a higher income.
- You can pass your pension on: You can nominate a beneficiary by completing an expression of wish form, so your pension can be paid to your loved ones should the worst happen. There are potentially valuable tax benefits involved, should you die, in leaving your pension savings to your beneficiaries. This is because money in your pension will normally be deemed to be outside of your estate for Inheritance Tax purposes. However, you should be aware of the following:
If you die before the age of 75
If you die before the age of 75, your pension can generally be paid out as a tax-free lump sum to your beneficiaries subject to the lump sum and death benefit allowance (LSDBA). If your beneficiaries take your pension as drawdown or as an annuity, then the LSDBA doesn't apply and payments will be tax-free if paid within 2 years of notification of death.
After 2 years of notification of death or if you die after age 75, your beneficiaries have the same options, but they’ll have to pay income tax on the benefits and the LSDBA won’t apply.
If you die after the age of 75
Your beneficiaries will still be able to take the money as a lump sum, but this will be taxed based on their marginal rate of income tax when they recieve the money.
Important information: Tax is based on individual circumstances and all pension and tax rules may change
Managing your money if you leave it invested
You’re free to choose any fund(s) from your scheme’s fund range if you leave it invested, but it is a good idea to make sure you’re invested appropriately. After all, investments do involve risk and you want to make sure your money is in funds that reflect your savings goals, time horizon and investment risk-return appetite.
One option if you have a Pension Drawdown Account after withdrawing some tax-free cash, is to consider an Investment Pathway. These are designed to offer you simple, good-value investments that broadly match four retirement income goals.
Help making a decision
We have lots of information and guidance on our website, but if you would like more personal support, you could consider regulated financial advice. You can find an adviser through the MoneyHelper directory or unbiased.co.uk. You can also contact our Workplace Investing Service Centre on 0800 3 68 68 68 to discuss what options might be available to you in your plan. Don’t forget, converting your pension savings into a retirement income could be one of the biggest financial decisions you ever make, so it’s really important you understand the options available to you and how they could affect your income in the future.
Investment Pathways
You may consider following our Investment Pathways, which are designed to ensure that you have access to simple, good-value investments that broadly match their retirement income goals once you have taken your tax-free cash and have a Pension Drawdown Account. These funds are not available across all our schemes, so you need to check your scheme’s fund range.
Investment Pathways
These funds are not available across all our schemes, so you need to check your scheme’s fund range.
Call us
Our Workplace Investing Service Centre can explain what retirement income options are available within your existing pension plan and which are not. Find out how they can help you access your savings.
Pension Wise
The government's Pension Wise service offers free, impartial guidance to over 50 year-olds to help you understand your options at retirement: 0800 011 3797.
1Fidelity Global Retirement Survey - September 2019
About the Fidelity Global Retirement Survey
The survey population consisted of respondents with the following qualifying conditions: individuals aged 20-75 years old; working full-time or part-time or have spouse working full-time or part-time; not retired; expecting to retire someday; with or without retirement savings; the main financial decision maker or equal joint main financial decision maker in the household; a minimum household income of United States: $20,000 annually; United Kingdom: £10,000 annually; Germany: €20,000 annually; Hong Kong: HK$15,000 monthly; Japan: ¥3,000,000 annually; Canada: CA$10,000 annually.
The research and analysis were completed for the United Kingdom, United States, Canada, Germany, Hong Kong and Japan. Data collection was completed in partnership with Ipsos, a global market and opinion research specialist, who collected and collated data for each region in September 2019.