3 Things You Can Do With Your Pension Pot
Pension Pots
What is a pension pot? A pension pot is the total amount of money you and your employer have saved up for your retirement. In other words, a certain amount of money is taken out every time you earn your salary, which goes towards your pension. The pension is only made available to you once you reach the retirement age or if unforeseen circumstances occur earlier in life, such as a disability, which forces you to retire early.
During your working life, you and your employer have been saving up your standard contributions in the form of a pension. Once you retire, you’re given access to the pension pot. However, you may be wondering what you can do with the money you’ve accumulated over the years? Should you withdraw the entire pension and buy the car of your dream? Or should you invest the money for more returns?
How do you use pension pots?
You decide how you will use the money. However, you don’t want to run into a situation where you either can’t access the funds or have none left to use. Usually, your final decision will be based on a few factors—other sources of income, lifestyle, family, current needs, and others alike.
That said, here’s three of the most common things people choose to do with their pension.
1. Purchase an annuity
If you want some form of income even after you retire, you can buy an annuity. When you purchase an annuity, you turn your pension pot into an annual pension, giving you income for an extended period. Because there are many providers available in the market, you should spend the time to research for the best deals.
Be aware that once you’ve made your decision and purchase an annuity, there is no turning back. You won’t be able to switch to another scheme or provider if you happen to find a better one. Because of this, it is vital that you thoroughly search around for the best offerings before deciding on one – obviously our team here at Innes Reid can assist you with this.
2. Leave it alone
If you have no plans to use the money, you can leave the money with your pension provider. Although your money will be safe there, it won’t be generating much money for you, unlike investing in stocks.
3. Withdraw some or all the money
You can either withdraw your entire pension or make occasional withdrawals as you would do with bank accounts. However, there are a few things to keep in mind if you’re going down this route.
If you want to withdraw money occasionally, not all pension providers allow this. Even if they do, there will be a charge for every withdrawal that you make.
Although a quarter of your pension funds won’t be taxed when you make a withdrawal, the remaining sum will be taxed. In other words, 25 percent of your fund will be tax-free.
Finally, there will be a limit to how many times you can withdraw from the pension pot, depending on the provider.
Consider all the factors before deciding on what to do you with your pension pot. Think of your lifestyle, your family, your age, what you want now and in the future. These aspects will be what dictate your final decision.
If you’re looking for a financial planning business to help you make the decision of how to use your pension pot, get in touch with Innes Reid and see how we can help!
