your pension explained

Staying working whilst drawing pension

The new simplification regulations have, to some extent, provided greater flexibility for those reaching retirement. For instance, its an increasing trend to wind-down slowly to retirement and this might mean working less, say, half the week, rather than a full week. In this case, it might be preferable to repay any debts or redeem the mortgage whilst taking only a limited amount of income from your pension.

One solution to this might be to take draw-down. Draw-down allows the retiree to take full tax-free cash from the policy and then take no income or a small or infrequent amount of income which can be used to complement salary or self-employed drawings. Once the decision to take full retirement is made then draw-down can continue or an annuity can be purchased. This situation allows prospective retirees to ease themselves into full retirement over a number of years, whilst keeping tax manageable and drawing a sufficient amount of income to maintain their standard of living.

This could also be achieved by using phased retirement, however, access to a big lump sum of tax-free cash isn't possible with this method, as part of the tax-free cash is used as income each year. However, for those struggling with higher rate tax, phased retirement might be a preferable option from a tax angle.

It's important to get advice on these products as they are complex and getting the correct product can be difficult and there are many pitfalls for the unwary.