Freedom factor 1: What are the pension freedoms?

After over a year of lockdowns it feels as if we’re opening a door and emerging, blinking, into the summer sunlight. And there’s a sense of freedom in sight.

Another freedom to look forward to is the day you can open the door to retirement – and your key here is the ‘pension freedoms’. Over the next few weeks, we’ll release a set of ‘freedom factors’ to help you understand the choices you have for taking your retirement income.

Freedom factor 1: What are the pension freedoms?

These are your options for taking defined contribution (DC) pensions:

  🗝️ Guaranteed income (‘annuity’)

  🗝️ Adjustable income (‘income drawdown’)

  🗝️ Cash

  🗝️ Mix and match

Tax-free bonus! All these choices come with optional tax-free cash – normally up to a quarter of your pension pot. And guess what? This tax-free cash doesn’t affect your personal income tax allowance (the amount of income you can have before starting to pay tax).

❌ Myth bust 

Myth: ‘All pensions are flexible now’

Fact: No – the flexible options we’re talking about here are only available for DC pensions. They don’t apply to defined benefit (DB) pensions. But this isn’t a bad thing – DB pensions are valuable because they offer a regular income, for the rest of your life, that usually increases over time.

🗺️ Your roadmap to freedom

Whether you’re close to retiring or some years away, it pays to have a plan. A good starting point is to ‘build a budget’.

Thanks to your employer’s partnership with Aspire to Retire, you’ve got our retirement experts on hand. If you’re thinking of taking your benefits in the next year, we can help you plan and you can ask for a personalised options pack which sets out your main options.

Find out more about how our retirement experts can help you.