Your choices at retirement and the Open Market Option (OMO)

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1 CLIENT FACTSHEET Your choices at retirement and the Open Market Option (OMO) This fact sheet focuses on how you can use your SIPP fund to buy an annuity in the open market to provide an income in retirement but also provides some high level information on the other options available. It highlights what you need to consider and lets you know where to get more information.

2 Guidance Guarantee Pension Wise Accessing the Government s free and impartial guidance service The Government has removed the restrictions on what you can do with your pension savings. This means that you are able to choose the option that s right for you. Pension Wise is a Government service that offers people approaching retirement free, impartial guidance about their choices. You can receive Pension Wise guidance online, over the phone or face to face. Choosing what to do with your pension savings is an important financial decision and it is often possible to get more for your money by shopping around. To use Pension Wise, please visit the Pension Wise website at or call Pension Wise provides tailored guidance to explain what options you have and help you think about how to make best use of your pension savings. It offers information about the tax implications of different options and other important things you should think about, as well as tips on how to get the best deal, including how to shop around.

3 Taking benefits from your SIPP Your Self Invested Personal Pension (SIPP) with James Hay Partnership provides you with flexibility regarding how and when you can take benefits from it. You can normally start to take benefits from age 55 and there is no upper age limit for when this has to start. You can take as little or as much as you want from a money purchase pension (such as your SIPP) once you have reached the minimum pension age (normally age 55). You will be able to: Usually take up to 25% of your SIPP fund tax-free Convert some or all of the rest into a regular retirement income by purchasing an annuity Withdraw the remaining cash in stages or take the whole SIPP pot as cash, subject to tax at your marginal rate. The Open Market Option (OMO) An Open Market Option is the term used to describe the choice you have to buy an annuity or one of the other types of retirement income products from another company that is not your current pension provider. This option allows you to shop around to see whether another company can provide you with a better annuity rate or income option, and therefore, a higher retirement income, than is available from your current pension provider. If you do decide an annuity is for you, there are different types to choose from. Once you buy one, you cannot change your mind, so it is very important to shop around and get help from a financial adviser before you make your choice. The Open Market Option is available to all SIPP Clients. Your Options on Retirement You have the choice of taking your pension in a number of ways: Accessing your pension when you want, through your SIPP. This can be done through: Lifetime annuity obtaining an income for life by purchasing a lifetime annuity from an insurance company on the open market A combination of the above options a) Flexi-access drawdown b) Uncrystallised funds pension lump sum

4 Accessing Your Pension To access pension benefits from your SIPP, you have two main choices: a) Flexi-access drawdown You can put part or all of your SIPP fund into income drawdown, known as flexi-access drawdown. This allows you to take a tax-free lump sum of normally up to 25% of your SIPP fund and any amount from the balance as an income at monthly, quarterly, half-yearly or annual intervals that can be varied on your instruction. This income will be taxed at your marginal rate of tax. Whilst in drawdown, your SIPP funds that you have not taken out of the fund as income remain invested and can continue to grow largely tax free. If you take an income as flexi-access drawdown, you will trigger the money purchase annual allowance rules. This limits the amount of tax relief you can get on future contributions to any money purchase pension (including your SIPP) to 10,000. b) Uncrystallised funds pension lump sum You can take a single or series of cash lump sums from your uncrystallised SIPP funds, known as an uncrystallised funds pension lump sum. Uncrystallised funds are those funds in your SIPP that you have not already taken into income drawdown. 25% of the amount you take is tax-free with the balance subject to income tax at your marginal rate. As long as you have sufficient funds in your pension, you can take any number of lump sums. You could even choose to take your whole SIPP fund in one go. It s worth noting that any growth on investments or money once they ve left the pension environment will be subject to applicable taxes. If you take an uncrystallised funds pension lump sum, you will trigger the money purchase annual allowance rules. This will limit the amount of tax relief you can get on future contributions to any money purchase pension (including your SIPP) to 10,000. Lifetime Annuity An alternative to accessing your pension through flexi-access drawdown or uncrystallised funds pension lump sum, is to use your SIPP fund to buy a lifetime annuity. If you buy an annuity from uncrystallised funds, you will normally be entitled to a tax-free pension commencement lump sum of up to 25% of your SIPP before you buy the annuity. If you are currently taking income drawdown, you can also use some or all of your remaining SIPP fund to buy an annuity at any time, but you will not be entitled to any additional tax-free pension commencement lump sum. Lifetime annuities provide a guaranteed income for life in return for a lump sum. You can buy different types of annuities depending on your needs and circumstances and this will affect the level of income received. When can I buy an annuity? You can buy an annuity at any time from age 55. There is no upper age limit for purchasing an annuity. You can use all or just some of your SIPP fund to buy an annuity, allowing you to phase your retirement. Generally, the older you are, the more annuity you can buy for your money. However, as annuity purchase rates can change all the time, both up and down, if you leave it until the last moment, you will have to buy at whatever annuity rates are available at that time, good or bad. What options do I have when I decide to buy an annuity? There are a wide range of different annuity options available and the choices you make and the type of annuity you select will affect the amount of income you receive.

5 Once you have purchased an annuity, it is unlikely that you will be able to change the type or features of it. Therefore, you should consider both your circumstances at the time you choose to buy an annuity and also what income you or your financial dependants may need in the future and whether your pension is your main source of income. The main types of options are as follows: Level annuity with income remaining level year after year Escalating annuity with income rising each year, either at fixed rate or in line with inflation Annuity if you have a partner with income paid for your lifetime and to a partner if they survive after your death Guaranteed annuity guaranteed for a specific number of years, so that if you die before the guaranteed period is up, your partner or estate will continue to receive the income. The maximum period is 10 years Investment linked annuity offers the chance to have a higher income than a level or escalating annuity, but linking to the value of the annuity investments so income could go down as well as up. There are also other types of annuity that may be available to you depending on your lifestyle or state of health, for example, an enhanced annuity or an impaired life annuity. These may offer different income levels. How is an annuity worked out? There are a number of factors that will affect the income you get from an annuity for example: The value of your pension fund(s) The annuity rate offered by the insurance company this rate can vary between different companies The type of annuity you choose to buy, for example single or joint, level or increasing income payments Your age and health. Do I have to pay tax on the income from an annuity? Yes, the income you receive will be taxed under PAYE at your marginal rate of tax. Should I shop around for an annuity? As James Hay Partnership is not an annuity provider, you will need to shop around for an annuity. Different insurance companies offer different annuity rates and different types of annuity products and you should shop around to get the best deal, and consequently a higher rate of pension income. How do I shop around for the best deal? James Hay Partnership can give you an estimate of the value of your SIPP, which can be used to compare the market. You will then be able to ask insurance companies to provide you with a quote for the type of annuity you have chosen. Most quotes will be fixed for a number of days and your chosen annuity provider will be able to confirm the number of days the quote is valid for. Due to the complexities of the products available, you should speak to your financial adviser to find out which type suits your needs. The finance pages of newspapers and the internet will also give you more details. There are also annuity comparison tables available on the websites of the Money Advice Service and The Pensions Advisory Service. Tax Any information relating to tax in this fact sheet is based on our interpretation of current law and HMRC practice. Please remember that tax treatment depends on your individual circumstances and current tax benefits may change in the future.

6 Further information For more information on your options when you decide to take your pension income from your SIPP, or the types of annuities available, please refer to the free printed guide Your pension it s time to choose produced by the independent Money Advice Service available from moneyadviceservice.org.uk/en/articles/freeprinted-guides#pensions If you are unsure as to the most suitable retirement option for you or if you would like further information or guidance you should contact a regulated financial adviser. If you do not have a financial adviser you can visit which will provide you with a list of financial advisers local to your area. James Hay Partnership is the trading name of James Hay Insurance Company Limited (JHIC) (registered in Jersey number 77318); IPS Pensions Limited (IPS) (registered in England number ); James Hay Administration Company Limited (JHAC) (registered in England number ); James Hay Pension Trustees Limited (JHPT) (registered in England number ); James Hay Wrap Managers Limited (JHWM) (registered in England number ); James Hay Wrap Nominee Company Limited (JHWNC) (registered in England number ); PAL Trustees Limited (PAL) (registered in England number ); Santhouse Pensioneer Trustee Company Limited (SPTCL) (registered in England number ); Sarum Trustees Limited (SarumTL) (registered in England number ); Sealgrove Trustees Limited (STL) (registered in England number ); The IPS Partnership Plc (IPS Plc) (registered in England number ); Union Pension Trustees Limited (UPT) (registered in England number ) and Union Pensions Trustees (London) Limited (UPTL) (registered in England number ). JHIC has its registered office at 3rd Floor, 37 Esplanade, St Helier, Jersey, JE2 3QA. IPS, JHAC, JHPT, JHWM, JHWNC, SPTCL, SarumTL and IPS Plc have their registered office at Trinity House, Buckingway Business Park, Anderson Road, Swavesey, Cambs CB24 4UQ. PAL, STL, UPT and UPTL have their registered office at Dunn s House, St Paul s Road, Salisbury, SP2 7BF. JHIC is regulated by the Jersey Financial Services Commission and JHAC, JHWM, IPS and IPS Plc are authorised and regulated by the Financial Conduct Authority. The provision of Small Self Administered Schemes (SSAS) and trustee and/or administration services for SSAS are not regulated by the FCA. Therefore, IPS and IPS Plc are not regulated by the FCA in relation to these schemes or services.(01/14) JHP 0055 JAN16 LD