Claiming Your Non-State Pension

In order to claim your State Pension you will need to have reached State Pension Age, currently set at sixty-five years of age for men and sixty years of age for women, and set to increase to sixty-eight years of age for both sexes by 2046. However, non-state pensions operate different rules on pensionable age; you must be at least fifty years old in order to draw a non-state pension, and at least fifty-five years old from 2010 onwards. You can defer drawing your pension if you wish, but you must begin taking an annual pension by age seventy-five. If you have been diagnosed with a serious illness, disability or life-threatening condition, most scheme providers will allow you to begin drawing your pension before you reach pensionable age. Your individual pension-drawing possibilities will depend on your pension scheme; for detailed information regarding your early-withdrawal options consult your pension scheme administrator.

When you come to retire you will be offered the chance to take a part of your pension fund as a tax-free lump sum. Your pension scheme can offer you a maximum of twenty-five percent of your total fund as a lump sum, on which you will not be required to pay tax, providing this lump sum is not of greater value than twenty-five percent of the current lifetime allowance. For more information on the allowance see Lifetime limit for pension savings. The current lifetime allowance for the tax year 2008/9 it is set at £1.65 million. You are therefore entitled to take a maximum tax-free lump sum of £412,500 from your pension fund during this tax year. If your total pension fund exceeds the lifetime allowance, you can take the money which exceeds the lifetime allowance as a lump sum, but this will be subject to fifty-five percent tax. If you have a relatively small pension fund, you may be able to take the whole amount as a lump sum, but only twenty-five percent of this amount will be tax-free: the remainder will be subject to income tax. For more information on small pension funds, see 'Trivial' Pension Funds.

Once you have taken your tax-free lump sum, you can use your remaining pension fund to provide you with an annual pension during your retirement. You can choose to leave your pension fund where it is, and draw a taxable pension known as an 'unsecured pension', from your fund until age seventy-five. Hereafter you can draw a taxable pension known as an 'alternatively secured pension' until you die or decide to purchase an annuity. For more information on drawing a pension from your pension fund, see Income Withdrawal.

Alternatively you can use your remaining pension fund to purchase an annuity from an insurance company. An annuity is an annual pension, paid to you by the insurance company at an agreed rate. There are different types of annuity which offer different advantages, such as an annuity which increases in line with inflation, and so it is important to research the annuities on offer from a range of insurance companies. You do not have to buy your annuity from the insurance company that currently manages your pension fund, but they may make you a good offer if you agree to continue to do business with them. The annuity you receive will depend on the size of your pension fund, the terms and conditions of the insurance company, and how many years you expect your retirement will last. When choosing an insurance company, and an annuity, to provide you with financial stability in retirement, it is best to consult an independent financial advisor who can suggest the best option to suit your individual financial situation. For more information on annuities, see Annuities.

If you are a member of an occupational pension scheme, see Occupational Pensions, the annual pension you are entitled to will be determined by the type of occupational pension scheme to which you belong. If you are a member of an occupational defined contribution scheme, you will be able to purchase an annuity, or opt for income withdrawal, using your pension fund. If you are a member of an occupational defined benefit scheme, you will already be aware of the benefit you can expect to receive on retirement. Usually this will depend on the number of years you have been a scheme member, your final or career average salary and the scheme's accrual rate, for example, 1/80. You will not need to worry about how to convert your pension fund to an annual pension: you will be paid the annual pension that your scheme's contract has promised. You will need to inform the scheme administrator when you wish to retire, so that they can guide you through any necessary administration.

When you decide that you want to retire, or continue working but begin drawing a pension, you will need to inform your pension scheme provider. They can advise you on the procedure you need to follow and any options you will need to consider. They may also offer you the chance to discuss your pension alternatives with an advisor, to ensure you choose a pension which meets your needs. Unless you are confident that you are being offered the best deal for you, seek the advice of an independent financial advisor before making a final decision on your future.