From the age of 55 you will be able to take benefits from your pension.
These can be taken as income, lump sums or by the purchasing of an annuity.
Under the current income and lump sum rules for the SIPP, these can come in the form of a tax free element and a taxed element.
There is no limit on the amount of pension you can take out, although if you started taking your pension before April 2015 you may be in capped drawdown, which is limited.
You can switch to flexible benefits (limitless) at any point, although this will mean the introduction of an annual allowance on contributions across all pensions.
Taking income payments early on in retirement or taking large amounts will reduce the value of the pension and potentially its ability to provide an income into the later years of retirement.
Additionally, if you start taking income earlier than planned, then this may have an impact on the pension fund’s ability to support you, it's longevity and it's ongoing growth.
Your pension holdings may be subjected to additional tax levies if the total value of all your UK pension holdings are greater than the Lifetime Allowance – a limit which the government have put in place in respect of the preferential tax advantages for pension savings.
The limits are £1,073,100 in the 2020-21 tax year. This will increase from April 2021 for 2021-22 in line with CPI.
In certain circumstances, individuals may be eligible for, or may have been provided with, protection in respect of these limits for pension savings they have already built up which near or cross the limits.
Sometimes these protections however are conditional, such as a requirement to no longer contribute to the plan, which may affect the original plans regarding your pension savings.
If you decide to use the pension fund to purchase an annuity, which is where you transfer your pension fund in return for a lifetime income, often guaranteed for a period of time to provide for beneficiaries, relative to your choice.
You can choose to take your tax free element and then transfer the remainder to the annuity provider to purchase the annuity, or forfeit the lump sum in favour of a higher income.
There is no guarantee that annuity rates will improve in the future.
If you elect to take an annuity, it may provide you with more or less income than you may be able to get through remaining in the SIPP.
In taking an annuity, you will give up the benefits in the event of death from your pension, such as the ability to pass on the pension as a lump sum to your beneficiaries, in favour of whatever terms are offered by the annuity provider.
It is usual that the provision of more protections, benefits and guarantees will be provided in return for a lower initial income, therefore, an annuity with a fixed income amount for life, and with no benefits for any dependants will have a higher rate of income compared to an annuity which is fixed to inflation rates and provides guarantees for your dependants should you die within 5 years.
NOTE: Forthplus Pensions does not provide annuity products.
You should consider all of these factors, along with any other questions you may have, with your professional adviser. They will also provide you with information relating to your personal circumstances which you may need to consider prior to applying to The Forthplus SIPP.
