Taking money from my pension. A guide to taking cash sums and a flexible income from your Legal & General pension pot.

Transcription

1 Taking money from my pension A guide to taking cash sums and a flexible income from your Legal & General pension pot.

2 Workplace DC Pensions Contents 3 INTRODUCTION 4 OPTIONS 6 THINGS TO CONSIDER 7 TAX AND ALLOWANCES 8 CHARGES 9 QUESTIONS AND ANSWERS 10 HELPFUL INFORMATION 11 TERMS EXPLAINED Welcome to your Taking money from my pension document. This document tells you about the options you have from age 55 to take money directly from your pension pot with us. Some, or all, of these options may be available to you under your current plan. We aim to use language that s easy to understand. Where we ve had to use terms that you may not be familiar with we ve given clear definitions. The terms will be highlighted in blue like this and an explanation of their meaning can be found in the Terms explained section on page 11. You don t have to limit your choice to one option or provider. You can mix and match your options for each pension pot you have. Or you could use only part of your pension pot and leave the rest to be decided on later. You should shop around to find what s best for you. You don t have to stay with us. Different providers will offer different options, features, rates of payment, qualifying criteria and charges. You have the right to transfer some or all of your pension pot to one or more providers. The free guide Your pension: it s time to choose available from the Money Advice Service contains information on your options and helpful tips on how to shop around for the best deal. Visit moneyadviceservice.org.uk for more information. Contact us If you have any questions and want to talk to us about your pension plan, please get in touch with us. Manage Your Account Check the progress of your pension savings at any time by logging into Manage Your Account at legalandgeneral.com/mya Telephone You can call our helpline on open between the hours of 8.30am and 7pm Monday to Friday and 9am to 12 midday Saturday. Call charges will vary. We may record and monitor calls. Please be aware our helpline staff can t provide financial advice. Post Workplace DC Pensions, Legal & General Investment Management, Brunel House, 2 Fitzalan Road, Cardiff CF24 0EB Alternatively you can us at employerdedicatedteam@landg.com 2

3 Taking money from my pension Introduction You can take money from your pension pot at any time from age 55 regardless of whether or not you ve stopped working. But you should think carefully before proceeding or your money could run out sooner than you think. Reaching the age of 55 isn t a deadline to act. Leaving your money invested will give it more time to grow but it could go down in value too. There are three main ways you can take money flexibly from your pension pot with us and information regarding these is shown in the Options section on page 4. The Tax and Allowances section on page 7 of this guide explains the tax treatment of the various options but is not intended as a tax planner. You ll need to understand your own circumstances or seek professional advice if you wish to understand the precise tax implications. There are other options available to you including using your pension pot to buy a lifetime annuity. This guide does not provide information on annuities. Please refer to your retirement pack or contact us using the details on page 2 for more information. Where can I get help with these options? Everyone over the age of 50 with a defined contribution pension is entitled to free and impartial guidance from the government s Pension Wise service. This service: covers a range of options to help you make sound decisions and take informed action, whether that s seeking further advice or purchasing a product; tells you about the different types of pension and what you can do with your pension pot what s tax-free and what s not; is offered face to face by the Citizens Advice Bureau or by phone with The Pensions Advisory Service. Visit pensionwise.gov.uk or call to register your interest and arrange an appointment. We ve also produced an online tool to help you decide which option may be right for you. You can access the retirement planner at legalandgeneral.com/workplacebenefits or in Manage Your Account which is our online system to enable you to amend your plan details. If you re still unsure about your options we recommend you speak to a financial adviser. You can find one in your local area by visiting unbiased.co.uk. Please note, financial advisers will usually charge a fee for their services. Our WorkSave Pension Plan and WorkSave Buyout Plan offer you a way of paying your financial adviser directly from your pension pot this is called a facilitated adviser charge. The advice you receive must be related to one of the plans listed above, and it s from this plan that we ll take the adviser charge. You must have enough money in your pot to pay for this. The Facilitated Adviser Charge Guide explains how this service works. Please go to legalandgeneral.com/adviserchargeguide and legalandgeneral.com/adviserchargeform for more information, or contact us using the details on page 2. If you are in a WorkSave Pension Trust, your scheme trustees may have made this option available to you. You can contact us using the details on page 2 to see whether the ability to facilitate an adviser charge is offered to you. Neither the managers of your pension scheme, Legal & General or the trustees (if applicable) will be held responsible for the consequences of your decisions about how you choose to take money from your pension pot. 3

4 Workplace DC Pensions Options Take your whole pot as a cash sum You are able to take your whole pension pot in one go. A quarter of this will be paid to you tax-free and the remaining amount will be treated as taxable income. Your cash sum will be paid directly to your bank account. Take smaller cash sums You can leave money invested in your pension pot and take smaller cash sums on an occasional basis as you need to. 25% of each cash sum you choose to withdraw will be tax-free with the remainder taxed as income. Payments will be paid directly to your bank account. The minimum cash sum is 2,000 or the full value of your pension pot if it is less than this. Take a flexible income Flexi-access drawdown allows you to select some or all of your pension pot and take a maximum of 25% of the amount as a tax-free cash lump sum, while the remainder stays invested. After taking any tax-free cash your remaining pot will stay invested in your existing funds until you choose to take any more money from your pot. This can be on a regular or occasional basis and the money taken will be taxed as income. You can change your existing fund selection at any time. Staying invested means your pot may benefit from additional investment growth, helping to continue to build your savings while drawing an income. The value of your pot may go down as well as up. Your pot will depend on investment performance in addition to other factors (such as charges and the effect of inflation), including how much income you choose to take. The more income you take the more likely the savings in your pot will run out. You should consider a number of things. Please see page 6 for more details. If you decide to take a monthly income from your pension pot, the monthly amount is subject to our minimums as shown below. You can stop, start or change the amount you take, in order to suit your own needs and tax position. Monthly payments will be paid directly to your bank account on the 21st of each month. You can request one-off withdrawals which could be in addition to any monthly payments. Flexi-access drawdown may not be available under some pension schemes. If it is available then it will be included as an option within your retirement options pack that will be sent to you nearing your chosen retirement age. If you haven t received this pack yet or are unsure if flexi-access drawdown is available to you, please contact us using the details on page 2. Monthly income minimum payment Occasional income minimum payment 100 2,000 4

5 Taking money from my pension If you wish to take a monthly income you will need to have at least 30,000 in your pension pot before taking any tax-free cash or occasional income payments. If you don t take your maximum tax-free cash (usually 25% of the pot) at this point, you won t have another opportunity to increase it to the maximum. However, the part of the pot which wasn t selected can be accessed in future, including any pot you build up by paying extra contributions, and up to 25% tax-free cash can be taken from that pot. Example The example below shows how many years your money may last if you take your full tax-free cash entitlement and a regular monthly income of 500, 400, 300 or 200. This is based on a pension pot worth 30, , ,000 25,000 20,000 15,000 10,000 5, Years The examples in the chart assume our charges are 0.75% each year and the investment growth rate is 5% each year. No account is taken of the impact of inflation. The value of investments can go down as well as up and the growth rate assumed in this example is not guaranteed. Under all of these options your payments may be subject to an emergency tax code. To find out more please refer to the Tax and Allowances section on page 7. 5

6 Workplace DC Pensions Things to consider Monthly or occasional income payments or cash lump sums taken from your pension pot will not provide you with a guaranteed income for life. Only a lifetime annuity can provide this certainty. The more money you take out, the faster your pension pot will run out. This could leave you with no income above your State Pension entitlement. Equally, you should ensure that you take enough money from your pension pot to meet your needs where possible. If you die before your pension pot is exhausted your beneficiaries can continue to benefit from it, by taking an income or a cash sum. Please see What happens to my remaining pension pot if I die? in the questions and answers section on page 9. Taking money from any of your pension pots could increase the tax you pay on any income that you receive in the same tax year. This means you might be required to pay a higher rate of income tax than you would otherwise usually pay. This may also mean you have to complete a self-assessment tax return. There are different tax consequences depending on how you take money from your pension pot and your personal circumstances. For more details about these please see the Tax and Allowances section on page 7. Any money you leave in your pension pot remains invested in funds with specific risks. The value of these funds is not guaranteed and can go down as well as up. These risks are described in our investment guide for your plan, available under our Fund Zone on our website legalandgeneral.com/workplacebenefits or Manage Your Account. Some investment funds may not be as suitable for your needs as others when taking money from your pension pot. We recommend that you take financial advice if you have any doubts. The law and tax rates may change in the future. Although it s not possible to know what changes future governments might make, any alteration to the law or taxes could affect the level of benefits you receive. The amount of tax payable by you will depend on your individual circumstances. Taking money from any of your pension pots could mean you lose any entitlement to means tested State benefits such as, housing benefit, council tax deductions, income support, income-based jobseeker s allowance and universal credit. You should check whether any benefits you or your partner receive (or could be entitled to in the future) will be affected by you accessing your pension savings. If you do receive State benefits you may wish to discuss this with the office that issues your benefits, or with Pension Wise. 6

7 Taking money from my pension Tax and allowances Tax In most circumstances 25% of all or part of your pension pot can be paid tax-free. The remainder is payable as taxable income under the Pay As You Earn (PAYE) system. Under current legislation, the payments will not be subject to deductions in respect of National Insurance. If your pension pot value is 10,000 or less you can take the whole amount as a small pot cash sum. We will pay 25% of the value of a small pot tax-free and pay the rest after deducting basic rate income tax. There may be a limit of 3 small pots that you can take depending on the type of pension scheme that this is being paid from and we ll let you know within your quote if this applies to you. We will pay 25% of the value of a small pot tax-free and pay the rest after deducting income tax at the basic rate, which is the rate we are required to use by HM Revenue & Customs (HMRC). HMRC will then add this to your total income received which might push you into a higher tax bracket. This might mean you have more tax to pay on this lump sum, and HMRC will let you know if this is the case. Please see section What happens to my remaining pension pot if I die? on page 9 for details about tax if you die and there is still money left in your pension pot. Emergency tax codes You should be aware that for any of the options (excluding small pots) outlined in this guide we will deduct tax based on the emergency tax code as we are required to do by HMRC. This may mean that we deduct too much or too little tax. However, HMRC will adjust this through your tax code and if we re making further payments to you, they will be taxed at your normal rate of income tax. Allowances Money Purchase Annual Allowance: When you first take money from any of your pension pots, other than as a tax-free cash sum only payment, your annual allowance may reduce to 4,000. This is known as the money purchase annual allowance (MPAA). We ll tell you if this applies to you. You ll need to tell all other pension plans where you re still building up benefits about this within 91 days. You will also have to tell any new schemes that you might join in the future. Annual Allowance: Your annual allowance may not be affected by taking a small pot of 10,000 or less. If you re a member of a defined benefit scheme (sometimes known as final salary), the money purchase annual allowance won t affect that scheme. For more information about the annual allowance please see the Terms explained section on page 11. Lifetime Allowance: You can only take a tax-free cash sum on the amount of your pension pot that is below your lifetime allowance. For the 2018/2019 tax year the lifetime allowance is 1,030,000. This means that if the total value of your pension savings is greater than 1,030,000 you ll pay a tax charge of up to 55% on anything over this amount. If you were eligible to apply, HMRC may have confirmed a higher lifetime allowance. For more information on the lifetime allowance, please read your terms and conditions booklet (for example, your Member s booklet or Policy booklet), which can be found on your pension plan website. Further information about tax and allowances can be found at gov.uk/income-tax-rates Protected Tax-Free Cash or Primary or Enhanced Lifetime Allowance Protection: If you have any of these protections, then only flexi-access drawdown will allow you to take a protected tax-free cash sum amount. The cash sum options described on page 4 will restrict your tax-free cash portion to 25% of the amount taken. 7

8 Workplace DC Pensions Charges How much will you charge me for taking money from my pension pot? There will be no charge if you decide to take your whole pot as cash. We will take a one off initial charge of 250 from your pension pot if you take a flexi-access drawdown monthly income. When taking either flexi-access drawdown, occasional income payments or any cash sums, the first payment in any yearly period will be free of charge. However, a charge of 20 will be taken from your pension pot for each further payment in the same yearly period. In certain circumstances we may need to make changes to our charges or introduce new charges. We will let you know if we do this. Please see the tables below for more information on charges: Flexi-access drawdown charges Tax-free cash only Monthly income with or without tax-free cash Monthly income with or without tax-free cash + taxable cash sum Taxable cash sum with or without tax-free cash Part of your pension pot 0 if first payment or 20 if subsequent tax-free cash payment from another part of your pension plan is made within 12 months All of your pension pot N/A 250 on initial set up only 250 one-off payment 250 on initial set up only 250 one-off payment 0 if first payment or 20 if subsequent payment made within 12 months since previous payment 0 if first payment or 20 if subsequent payment made within 12 months since previous payment Cash sum charges Whole pot 0 Partial cash sum taken less frequently than once a year* 0 Partial cash sum taken more frequently than once a year* 20 *One free payment in any 12 months. When will these charges be taken? We will take these charges before we make any payment to you. What are the charges on my remaining invested pension pot after I make withdrawals? We will continue to deduct our Annual Management Charge (AMC) and Fund Management Charge(s) (FMC) on any money that remains invested in your pension pot. Annual management charge (AMC) This charge covers the cost of running your pension plan. The charge that you will pay has been agreed with your employer. We show the AMC as a percentage of the value of your pension pot over a year. We work out the charge daily and take it once a month. We take these charges by selling units in the fund or funds that you re invested in. If the AMC rate you pay increases, we will tell you before any change is made. Fund management charge (FMC) This charge covers the cost of running the investment funds. Different investment funds have different FMCs that are reflected in the price of the units of each fund rather than being deducted from your pension pot. The FMC of any fund could change in the future. Please refer to your annual benefit statement and terms and conditions booklet (for example, Member s booklet or Policy booklet) for more information about the charges that apply to your plan. 8

9 Taking money from my pension Questions and answers Can I still pay in to my plan after accessing my pension pot? Yes, you can continue to make contributions and receive tax relief on them, up to your 75th birthday. However, if you choose to take the flexi-access drawdown option, you will need to leave at least 100 invested in your pension pot that is not used for taking any withdrawals in order to keep your existing pension plan open for contributions. You then have the option to continue to take lump sums, tax-free cash and income from any further contributions. Please refer to the Allowances section on page 7 for more information. Which funds will you take my money from? If you are invested in more than one fund, we will deduct money proportionately from the funds your pension pot is currently invested in. Where you are invested in a lifestyle profile we will switch the value of your pension pot into the underlying funds of that lifestyle profile if you are taking an income by flexi-access drawdown. This means you ll no longer be in a lifestyle profile and your fund mix will no longer switch automatically. If you have self-invested assets in a Legal & General WorkSave Pension Plan, you will need to tell us which of these investments you wish to use to pay your income from. Where is my pension pot currently invested? You can check where your pension pot is invested and see all other investment options available to you using Manage Your Account in the years before you start to access your pension pot. You can access this at legalandgeneral.com/manageyouraccount or go to your scheme website (if applicable). Can I transfer my pension pot? Yes, you can still transfer your plan to another registered pension scheme or annuity provider even after you have taken some money from your pension pot. Once I have taken money from my pension pot, can I change my mind? You can t change your mind once we ve made any payments to you but you do have a right to cancel before the commencement of flexi-access drawdown payments. You can however let us know if you wish to stop or change the amount of future flexi-access drawdown monthly payments at any time. What happens to my remaining pension pot if I die? If you die before age 75: the value of any remaining money in your pension pot can be taken by your chosen beneficiary, in most cases as a tax-free single cash lump sum or through flexi-access drawdown. However the exact options available will be determined by the terms of your scheme or policy. If you die after age 75: the value of any remaining money in your pension pot can be taken by any nominated beneficiary in most cases as a single cash lump sum subject to the beneficiary s marginal rate of income tax. Alternatively, subject to the rules of your scheme or policy, any nominated beneficiary may be able to take an income through flexi-access drawdown, subject to their own marginal rate of income tax. If the beneficiary is your spouse, registered civil partner or another dependant they will also have the option of using the remaining money in your pension pot to buy an annuity subject to their marginal rate of tax. 9

10 Workplace DC Pensions Helpful information There are a number of organisations that can help you find out more about workplace pension plans. Citizens Advice Bureau The Citizens Advice Bureau aims to provide the guidance people need for the problems they face and improve the policies and practices that affect their lives. Further information is available at: citizensadvice.org.uk or by calling GOV.UK GOV.UK is a useful source of information from the government on pensions. On their website you ll be able to find information about pensions and retirement, including the State Pension, Pension Credit, National Insurance in retirement and much more. gov.uk Pension Tracing Service The Pension Tracing Service provides a tracking service for ex-members and their dependants of schemes with pension entitlements, who have lost touch with earlier employers. The Pension Tracing Service can be contacted at: The Pension Service 9, Mail Handling Site A, Wolverhampton, WV98 1LU. Tel: gov.uk/find-pension-contact-details The Pensions Advisory Service (TPAS) The Pensions Advisory Service is available to assist members and beneficiaries of a scheme with any pension query they may have, or any difficulties which they may have failed to resolve with the Trustees or administrators by the Internal Disputes Procedure. TPAS can be contacted at: The Pensions Advisory Service (TPAS), 11 Belgrave Road, London, SW1V 1RB. Tel: pensionsadvisoryservice.org.uk The Pensions Ombudsman The Pensions Ombudsman has the power to investigate and decide upon complaints and disputes involving occupational pension schemes. It will normally expect to act only when a matter has been referred to TPAS and not satisfactorily concluded. The Pensions Ombudsman can be contacted at: Office of the Pensions Ombudsman, 11 Belgrave Road, London, SW1V 1RB. Tel: pensions-ombudsman.org.uk The Pensions Regulator (TPR) The main purpose of The Pensions Regulator (TPR) is to monitor the running of occupational pension schemes. In general it will act if and when irregularities in the running of a scheme are brought to its attention. The scheme s administrators and professional advisers have a duty to provide a report to The Pensions Regulator if they believe there have been any irregularities in the running of the scheme. The Pensions Regulator can be contacted at: The Pensions Regulator, Napier House, Trafalgar Place, Brighton, BN1 4DW. Tel: thepensionsregulator.gov.uk Pension Wise Pension Wise is a government backed initiative providing free and impartial guidance to help you understand the options available to you when taking your benefits. Further information is available at: pensionwise.gov.uk or by calling

11 Taking money from my pension Terms explained Annual allowance Generally, you can pay the equivalent of your entire annual salary each year (or up to 3,600 if that s more) and still get tax relief. However, the government has put in place an annual allowance which, for the 2018/2019 tax year is 40,000. It includes any money that you pay in and any money that an employer pays in on your behalf to any pension plans you may have. For those with earnings over 110,000 a year, and 150,000 a year when total pension contributions are included, the annual allowance may reduce below 40,000 but not less than 10,000. If you exceed the annual allowance you will pay tax on the total amount that is paid above it. Annuity An annuity is a product that provides you with an income when you come to access your pension pot. You can use the value of your pension pot to buy an annuity from us or another annuity provider. You will then receive an income for the rest of your life or for a fixed term. How much income you ll get depends on a number of things including how much your pension pot is worth and the annuity rate at the time you come to buy one. Don t forget that you can buy an annuity from whichever provider you choose and it pays to shop around for the right deal for you. Defined benefit scheme This is often referred to as a final salary scheme. The benefits are defined so you can calculate how much you will get when you take your benefits. They depend on your salary level when you leave the scheme, your time in the scheme and the accrual rate. This is the rate that pension benefits build up at for each member. Defined contribution scheme These can be money purchase occupational schemes, a stakeholder or personal pension plan. What s paid in is the defined part, rather than the final benefits. The final benefits will depend on the total contributions paid in and how they have grown whilst invested. Your income also depends on the options you choose at retirement. Dependant A dependant is either: A person who was married to or in a registered civil partnership with you at the time of your death; A natural or adopted child provided he/she is under the age of 23 or was dependent upon you at the date of your death because of mental or physical impairment; or A person who falls into neither of the above categories and who at the date of your death was, either financially dependent on you, in a financial relationship of mutual dependence with you or dependent on you because of mental or physical impairment. Emergency tax code This is a temporary tax code, which is applied to your income above the basic personal allowance. Your tax code is used by your employer or pension provider to work out how much income tax to take from your pay or pension. HMRC will confirm your correct tax code to your employer or pension provider. More information on income tax is available at gov.uk/income-tax-rates Lifestyle Profile This is an investment strategy that offers you the potential to grow your pension pot in the long term. As you get closer to retirement, your money is gradually moved into funds that are more stable. The investment strategy can also be targeted to suit a particular retirement outcome. Lifetime allowance You will pay additional tax on your pension pot if the total value of this and any other pension pots you have accessed are worth more than the lifetime allowance. For the 2018/2019 tax year the lifetime allowance is 1,030,000. This means that if the total value of pots you access exceeds 1,030,000 you will pay a tax charge of up to 55% on the excess. Marginal rate of tax This is the rate of tax that HMRC apply to your individual earnings (income) over and above the basic personal allowance. The basic personal allowance is a limit set by the government, which is 11,850 for the 2018/2019 tax year. This reduces for those earning over 100,000 and falls to 0 for those earning over 122,000. Your marginal rate of income tax over the personal allowance is determined by the margins that the government set every year which your earnings will fall into. These rates may depend on which country you live in within the UK. HMRC will tell us which rate to apply. You can find out more about what this means for you at gov.uk/income-tax-rates Pension pot Your pension pot is the value of the total amount of money that you have in your plan. From age 55 you can access your pension pot and use the money you ve built up over the years to provide an income, cash lump sums or a combination of both. Registered pension scheme So that you can benefit from the tax advantages of saving in a pension plan, the scheme needs to be registered with HMRC. This includes occupational and private personal pension schemes but excludes State pension schemes. Trustee A trustee is a person or company, acting separately from the employer, who holds assets in the trust for the beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members benefits are secure. 11

12 Workplace DC Pensions Contact us legalandgeneral.com/mya Call charges will vary. We may record and monitor calls. legalandgeneral.com/workplacebenefits Legal & General (Portfolio Management Services) Limited Registered in England and Wales No Registered office: One Coleman Street, London EC2R 5AA We are authorised and regulated by the Financial Conduct Authority. Legal & General Assurance Society Limited Registered in England and Wales No Registered office: One Coleman Street, London EC2R 5AA We are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Q /18 SUB191683