Pension benefits can be taken at any age between 50 and 75. It is not necessary to stop working to take benefits; and, in some circumstances, benefits can be taken earlier than 50 (i.e. if the member is seriously ill). Note: from 2010, the lower limit becomes 55.
The benefits which can be taken on retirement are:
- In most cases, up to 25% of the fund as tax free cash
- A pension paid direct from the fund through income withdrawals (often called income drawdown)
- A pension secured by an annuity contract with an insurance company, paid at regular intervals
The facility to take income directly from the fund confers greater flexibility than traditional annuity purchase, the potential advantages being:
- On death before 75, any remaining capital held within the SIPP can be paid out as a lump sum (to anyone), subject to a 35% tax charge, or be used to provide any spouse or dependant with a pension benefit. These benefits will generally fall outside of the member’s estate for Inheritance Tax purposes
- The ability to control the level of income to suit changing needs and lifestyle (within certain limits)
- The member retains complete flexibility to alter the investments throughout
- The facility to take benefits in phases i.e. phased income withdrawal using successive amounts of fund as needed. (It is also possible to buy separate annuities in phases but income levels are pre-determined on purchase)
Each time part of the SIPP fund is used to provide benefits, up to 25% of the fund used, may be taken as a tax-free lump sum. The balance then used to provide a pension via income withdrawals or annuity purchase.
Income withdrawal versus annuity purchase?
The choice between the two depends on personal circumstances, attitude to risk and other factors. We recommend professional financial advice is sought.
Alternatively secured pension
It is possible for a member to continue taking income drawdown direct from their fund after age 75, subject to a lower limit and other restrictions. For information visit our Technical Centre.