What is a pension pot?
A pension pot is the total amount of financial contributions you and your employer have made towards your retirement.
This pension pot includes any capital growth made from your fund’s investments over the years. It’s likely that you’ll receive a yearly update on how much your pension pot is worth. Although, these days you can usually access this information online, too.
When can I draw from my pension pot?
Generally, to draw from your pension pot you must reach your minimum retirement age. This age is usually set by your pension provider, although in most cases the age is 55. However, this isn’t set in stone. For example, you may be able to access the pot earlier if you’re suffering from ill health or a disability.
How can I use my pension pot?
Deciding how you can use your pension pot can often be a little confusing. This comes down to the array of options available to you. And because each pot comes with a unique set of considerations, such as fees, risks and tax benefits, you need to work out which one suits you, your family and your lifestyle.
Here are some things to take into account when working out what to do with that money you’ve set aside for your golden years:
- The lifestyle you lead
- Your family members or partner
- The age you wish to retire
- Any long term health issues
- Any care needs
- Alternative sources of income
Once you have worked out what you need, you can look at your options for accessing that pension pot. Although not all pension providers offer the same options, the following examples are typical of a standard pension provider:
Let it be: If you’re comfortable with your cash flow then you have the option of leaving the pension pot alone and continuing to invest that money.
Take a lump sum: If you want instant access to a chunk of cash then you can take some or all of your pension pot as a lump sum.
Buy an annuity: This means you can receive a regular requirement income for either a set period or the rest of your life.
Income drawdown: You can leave your pension invested in the pot and take a taxable income from it.
Mix and match: If you want to exercise your options then you can use a combination of the above examples.
So, there you have it. As it turns out, you’ve got plenty of options for accessing your pension pot. But remember to talk to your pension provider to help you make the right decision for you and your family.