What happens when I start to receive my pension or I retire?

There are three ways in which you can get money from your personal pension:

• an annuity;
• a lump sum; and
• income withdrawal

An annuity is an arrangement by which a life insurance company pays you a pension for life after you retire. You do not have to buy an annuity from the company you have your personal pension with, so you should shop around to compare what other companies have to offer. An annuity is usually paid every month (but it must be paid at least once a year) until you die. If you buy an annuity using your ‘protected rights’ (rights that are made up from the minimum contributions paid by the Inland Revenue and any money made from their investment), you must buy it between your 60th and 75th birthdays. You can buy an annuity using the fund from your other contributions (not your protected rights) between your 50th and 75th birthdays.

If you buy an annuity with your protected rights, it is worked out in the same way for men as it is for women. If you buy an annuity with the fund from the other contributions, it is not worked out in the same way. This is because the companies selling annuities take account of the fact that, on average, women live longer than men and therefore women’s pension payments tend to carry on for longer.

If you make payments into your personal pension above those paid by the Inland Revenue, you will be able to get a tax-free lump sum when you retire. The most that you can get under this arrangement is 25% of the money you have paid in and any money you have made from its investment.

‘Income withdrawal’ (sometimes called ‘income drawdown’) means you may be able to take an income from your pension fund instead of buying an annuity. You can take an income from your protected rights fund if you are between your 60th and 75th birthdays. You can take an income from your other pension contributions if you are between your 50th and 75th birthdays. There are limits to the amount you can withdraw from your pension fund under this arrangement, and you must buy an annuity before you reach 75. For more information see the FSA guide to annuities and income withdrawal. Click here for details about how to get a copy of this guide.