Your retirement journey
Normal retirement age in the Fund is 65 but you can choose to retire earlier or later than that if you wish.
When you retire you can use your pension account in a variety of ways. You can watch this video that explains the basics in three minutes (Note: this will take you to an external site). The Fund offers ‘single retirement options’ (where you take all the money in your pension account in the same way at the same time) and ‘dual retirement options’, where you can take it in different ways, and/or at different times. You will need to transfer some of your DC Section funds to another provider to access some of these options. To understand what happens when, as you approach retirement, view the retirement process flowchart.
Single retirement options
You can take up to 25% of your account as tax-free cash*, if you wish, and use the rest to:
- Buy an annuity
- Take a cash lump sum
- Set up a drawdown account with a different provider.
You can also transfer it out in full to another arrangement.
Dual retirement options
You also have the choice of one or more of the following ‘dual retirement options’ (which also include taking tax-free cash* as above):
- Buy an annuity + take a cash lump sum
- Take a partial transfer to another arrangement + buy an annuity
- Take a partial transfer to another arrangement + take a cash lump sum.
You can find out more about these options in the DC Section member booklet.
*Up to a maximum of £268,275 for most members.
You can use the money that has built up in your Bonus Choice account (if you have one) in a different way to how you use your main pension account. You can also use a dual retirement option in relation to your Bonus Choice account – giving you a choice of up to four options across the Fund.
As you approach retirement, Fidelity International will write to you about your retirement choices from the DC Section.
Once you’re aged 50+, you can get free guidance on your options from Pension Wise, which is part of the Government’s MoneyHelper service.
You may also want to speak to an independent financial adviser when you get closer to retirement but, please note, they usually charge for their services. You can find an adviser in your area by searching MoneyHelper’s online directory.
At retirement, you can usually take up to 25% of the value of your pension account as a tax-free cash lump sum. The way you are taxed on the rest depends on how you take it.
If you use some or all of your pension account to buy an annuity from an insurance company, the regular payments you receive from the insurer will be taxed as income under Pay As You Earn (PAYE). The insurer may initially put you on an emergency tax code unless they’ve received your P45 or receive notification from HMRC of the correct tax code to use, so it’s important to check the amount of tax you’re paying. If you pay too much tax, you can claim it back through an annual Self-Assessment.
After taking your 25% tax-free lump sum, you could set up a drawdown account with a different provider, where the balance of your retirement savings would remain invested, giving the potential for future investment growth. Any money you take out above the tax-free lump sum will be taxed as earnings in the tax year you take it. Depending on your other income in the tax year you take it, a withdrawal might push you into a higher tax band and increase the amount of tax you’ll need to pay.
If you take all the money in your account as a single cash lump sum, the first 25% will usually be tax-free. However, the amount of tax-free cash available is restricted by the Lump Sum Allowance (LSA), which sets a limit of £268,275, unless you have previously applied to HMRC for LTA protection (in which case a higher limit may apply). The rest of your lump sum will taxed at your marginal rate of tax.
You might also be able to take the money in your account as a series of cash lump sums; in this case, the first 25% of each payment will be tax-free (subject to the above limit) and the rest taxed as income. Depending on your other income in the tax year you take it, a withdrawal might push you into a higher tax band and increase the amount of tax you’ll need to pay.
Flexible retirement is an option where you take some of the money in your pension account early, but continue working and paying into the Fund. You can only do this once.
You can either take a one-off cash lump sum direct from the Fund, or transfer a portion of your account to another arrangement, leaving the balance invested in the Fund until a later date. (You must leave at least £10,000 in your DC Section pension account or get the Trustee’s agreement if you want to leave less.)
This option applies to your main pension account and Bonus Choice account separately. This means, for example, you could take all or part of your main pension account early and then take all or part of your Bonus Choice account early at another time.
You can find out more about flexible retirement in the DC Section member booklet.