Below is a snapshot of information about the alternatives to drawdown, however for more information on the pros and cons of each option please request our free guide to your options at retirement.
If you are at all uncertain about your options we suggest you seek advice or guidance. Pension Wise the Government’s free impartial service could help - more on Pension Wise. Our friendly support team could help answer your questions, contact them on 0117 980 9940, they can also put you in touch with one of our financial advisers.
Take lump sums directly from the fund (UFPLS)
This option allows you to take lump sums directly out of your SIPP without having to go into drawdown. This is called an uncrystallised funds pension lump sum (UFPLS). You don’t have to take all of your pension as a lump sum in one go, you can stage the process. Each time you take an UFPLS, 25% will be tax free and the rest taxed as income.
If you would like more information on how to apply for an UFPLS please contact us on 0117 980 9940.
Conventional lifetime annuities
A conventional lifetime annuity is one of the simplest retirement options and provides you with a secure, taxable income which is payable for the rest of your life.
Once it has been set up it cannot normally be changed, and cannot be affected by stock market fluctuations or interest rate changes, so you can rest safe in the knowledge that your annuity income will never run out. Find out more about annuities.Discover your options, the pros and cons and how you could significantly enhance your pension income upon retirement.
Investment linked annuities are designed to give you the opportunity to obtain an income which increases during your retirement, but the income is not fixed. Unlike conventional annuities, they are linked to an investment within the annuity provider's range so they contain an element of investment risk.
Your future income could increase if the investment grows - but conversely, if the investment value falls, your income could decrease.
Fixed term annuities are relatively new and share some of the characteristics of both lifetime annuities and drawdown. They pay a regular income for a limited number of years, selected at the outset.
At the end of the fixed term the investor has a lump sum available within the pension plan to reinvest for more income. In that respect fixed term annuities are closer to drawdown. They offer the opportunity to review the choices you have made, but there are big risks involved.
We do not offer investment linked or fixed term annuities. In our view, these products will not be the answer for most people. We believe most clients who want a mixture of annuity and drawdown benefits are likely to be better off taking a mix and match approach by splitting their fund simply between an annuity and drawdown.
Mix and match the options
You don’t need to make a single choice – you can mix the options to match your needs. For example, you could use some of your pension to secure an annuity to provide for your essential living costs, and use the rest to provide a flexible income, as long as you accept the flexible income is not guaranteed. We have developed a Retirement Planner tool which lets you mix and match between annuities and drawdown to find your preferred blend of secure and flexible income.
Remember there is no requirement to access your whole pension in one go. You could, phase the process by setting up a series of annuities or drawdown arrangements, for example, and gradually draw on your fund over a period of time.
Each time you take benefits in this way you can usually take up to 25% tax-free cash, plus a taxable income from that segment. Phased retirement can be particularly useful if you don't need all your income or tax-free cash at the start.
|Drawdown versus Uncrystallised Funds Pension Lump Sum (UFPLS)|
Open to any investor over age 55 who wants to keep their pension invested from which to draw a variable income.
They must be comfortable that the pension is invested which means future income is not secure and could fall, or even run out.
Open to almost any investor over age 55 who wants to withdraw a lump sum directly from their pension, who has not yet taken any tax-free cash or income from that part of the fund.
They must be comfortable that the remaining pension is invested which means future income is not secure and could fall, or even run out.
|Do I have to use my entire pension fund?||No – you can move funds into drawdown in stages (known as partial or phased drawdown).||No – you can take lumps sums as and when you require income.|
|Will part of my payment be tax free?||Yes - usually up to 25% of the fund allocated to drawdown is paid as a tax-free lump sum.||Yes – usually 25% of the lump sum you take will be tax free.|
|Do I have to take an income straight away?||No – after taking your tax-free cash you can leave the remaining drawdown funds invested and take what income you like when you like. There is no minimum or maximum withdrawal limit.||You will be paid your lump sum in one go. 25% of this will be tax free and the rest taxable. If you have reached 75 and used up most of your lifetime allowance the tax-free amount could be less than 25%.|
|When can withdrawals be taken?||
Your tax-free cash payment should be received the next working day after drawdown is set up. Income payments are issued on the 28th of the month.
You can choose to have income paid monthly, quarterly, half-yearly, annually, or as one-off payments.
|Lump sum withdrawals from the Vantage SIPP will be paid within 5 working days of receiving your application.|
|What are the charges?||
No set up charge or transfer-in charge from us. If all your funds are withdrawn an account closure fee will apply.
See our new charges »
|What about tax?||When you decide to take income from your drawdown funds, each payment will be subject to Pay As You Earn (PAYE) income tax.||75% of your lump sum will be subject to Pay As You Earn (PAYE) income tax.|
Hargreaves Lansdown, like all pension providers, will deduct tax, where applicable, before any withdrawal is paid out. Withdrawals will be added to your income in that tax year and subject to any further income tax. Large withdrawals could result in you being pushed into a higher tax bracket.
For investors first taking income from drawdown or via an UFPLS, it is likely emergency tax will be deducted, unless we are supplied with a current and original P45. If you pay too much tax you will be able to reclaim this from HMRC directly. The tax you pay will depend on your circumstances, and tax rules can change in the future.
The information on our website is not personal advice but we can offer advice if specifically requested. What you do with your pension is an important decision, which could be irreversible. Drawdown and UFPLS withdrawals are more complex options than an annuity. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you are unsure. The Government's free Pension Wise service can help. It provides impartial guidance face-to-face, online or by phone - more on Pension Wise.
|Drawdown versus annuities|
You are free to withdraw what you want, when you want, (income limits will apply to those in capped drawdown). You choose where your pension is invested and are responsible for monitoring your investments.
Once your annuity is set up, your income is fixed for life and cannot be changed. It doesn’t need to be reviewed and will never run out.
Whilst your fund remains invested, its value is not guaranteed and is subject to the ups and downs of the market. Your future income could fall or even run out if your investments perform badly, you live longer than expected or you make excessive withdrawals.
Your income is secure, will be paid to you for at least the rest of your life no matter how long you live, and is not affected by market performance. However, remember that if you choose a level income its value could be eroded by inflation over time.
You can invest your pension funds wherever you wish within the Vantage SIPP. Choose from over 2,500 funds, shares, ETFs, bonds, gilts, cash and more.
Before you buy your annuity you can shop around to find the best rates and could increase your income significantly by doing so.
You can adjust your income at any time. If you die your funds may be inherited by your beneficiaries as a lump sum, via drawdown or as an annuity (tax free in some cases).
Once it has been set up, your annuity cannot be altered. It cannot be inherited by your beneficiaries unless you selected a spouse's income, a guarantee period or value protection before the annuity was set up.
Drawdown does not take health or lifestyle into account.
If you smoke, suffer from any ill health or currently take any prescribed medication, you could enhance your annuity income significantly. Get an enhanced annuity quote online now to find out if you qualify.
The information on our website is not personal advice but we can offer advice if specifically requested. What you do with your pension is an important decision, which could be irreversible. Drawdown is a more complex option than an annuity. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you are unsure. The Government's free Pension Wise service can help. It provides impartial guidance face-to-face, online or by phone - more on Pension Wise.