The Which? pension calculator
The earlier you start saving, the better. Which? helps you to plan effectively for your retirement by working out whether you're on course to save the amount you need.
The Which? pension calculator estimates the size your pot will be at retirement, and what income you could expect to get if you opt for an annuity or drawdown – and we explain what these are.
What are my pension options?
Once you've an idea of the size of your pot, you can start to think about what you might do with your pension fund when you retire.
We explain the main options below, and there's more detail in the rest of this guide.
An annuity is a product that allows you to convert your pension fund into a regular income that will last for the rest of your life.
The big benefit of an annuity is that your income is guaranteed. You’ll receive a fixed regular payment each year until you die, however long you live.
The flipside is that if you die early, you won’t usually be able to leave any to your family, irrespective of how much of your fund has been paid out (unless you've taken out a joint-life, value-protected or guaranteed annuity).
Flexi-access drawdown, or income drawdown, is where you keep your money invested when you reach retirement and take money out of (or 'draw down' from) your pension pot. You then use this money to live on.
Since your money stays invested (as opposed to being turned into an annuity), and it's usually in the stock market, there is the risk that your fund may fall in value.
The upside is that investment growth can provide higher returns and see your pot continue to increase in value.
Take lumps sums from the pension
There's another flexible way to take money from your retirement savings. You can leave your money in your current pension fund and take lump sums when you need to.
The unwieldy technical term for this is ‘uncrystallised funds pension lump sums’ – or UFPLS.
They're 'uncrystallised' because you haven't moved the money out of the pot and into another product, such as income drawdown or an annuity.
In theory, your pension can be used a bit like a bank or a savings account. You take cash out when you need to, while the rest continues to grow.
Take the whole pension
A major part of the pension freedoms was that it made it possible to take your entire pension fund in one go.
The first 25% of your pension can be withdrawn completely free of tax. You’ve always been able to withdraw the remainder of your savings, but this was previously taxed at 55%.
The new reforms mean that you will be pay tax at your marginal rate – 0%, 20%, 40% or 45%. This will vary depending on how much money you withdraw.
Income taxes in Scotland are different. You'll pay income tax at 0%, 19%, 20%, 21% or 45%.