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Choosing a pension that’s right for you

River Cam, Cambridge

As a member of the Plan, you have a have a variety of options, now that you are approaching retirement.

  • Pension from the Plan

    The options below are if you choose to take a pension from the Plan.

    Money Purchase 2003 (MP03) Section members: You can currently use your pension pot to purchase a monthly income for the rest of your life which is paid from the Plan. The pension will increase each year in line with inflation up to a maximum of 5%. A spouse/dependant’s pension is payable on your death, equal to two-thirds of your pension (ignoring any reduction applied if some of your pension is exchanged for a lump sum on retirement). This pension will also increase each year in line with inflation up to a maximum of 5%.

    Defined Benefit (DB) section members: The pension payable from the Plan at retirement depends on the section of which you are a member. To view your section information please visit the Find out which section you are in page.

    Auto Enrolment (AE) Section members: You are unable to receive a pension from the Plan. However, you may purchase an individual pension from an insurance company, known as an annuity.

  • Pension options through other providers

    The options you could access if you transferred your pension pot out of the Plan to another provider include one or more of the options below: 

    Single lump sum
    You could take all your pension pot as a one-off lump sum. 25% of this would be tax-free and the rest would be taxed as income. Please consider this option carefully, especially if you have a large amount of pension savings.

    Flexible drawdown
    This option allows you to dip into your pension pot and withdraw smaller lump sums when you need them. This means that you could benefit from further investment growth. You would still get 25% of your pension pot tax-free.

    You could use your pension pot to purchase a monthly income for the rest of your life from an insurance company, known as an annuity.

    Providers may offer a different mix of these options and will offer different charges for each one. There will also be different tax implications so it is important to seek financial guidance and advice when deciding which options may be suitable for you.

For full details on both MP03 Section and AE Section retirement options see the ‘Member handbook’ (PDF 3.6MB).

What happens when you reach retirement in the Plan?

Around six months before your retirement date, we will send you a pension statement providing details of your benefits and options at that date.

You can request a pension statement at any time by contacting our pensions team.

Your options at retirement are as follows:

  • Option 1 – Pension
    • You would receive a monthly pension from the Plan (unless you are a member of the AE Section),
    • This would increase each year in line with the Rules of your section
    • If you are a member of the AE Section you may purchase an individual pension from an insurance company, known as an annuity

  • Option 2 – Reduced pension and tax-free lump sum
    • You can give up some of your pension in exchange for a lump sum that is paid tax-free
    • This means your monthly pension will be less
    • Your pension amount would increase each year
    • If you are a member of the AE Section, you will need to discuss your tax-free cash options with your annuity provider
  • Option 3 – Trivial lump sum
    • If the total value of all your pension benefits (not just from the Plan) is under £30,000 you may be entitled to take it as a lump sum, 25% of which is tax-free

  • Option 4 – Transfer your benefits
    • To take advantage of the flexibilities available for Defined Contribution Sections (DC) pension arrangements, you would need to transfer your pension to another provider
    • If the transfer value of your pension in the Plan is more than £30,000, we may need to see evidence that you have taken independent financial advice before a transfer can be paid. This is relevant to members with safeguarded benefits in the Plan, which includes Defined Benefit (DB) section members and members of the MP03 Section who joined the Plan before 6 April 2016. There will be a cost to receiving the regulated financial advice and certain adviser checks will need to be made. You can read more if you’re thinking of moving your pension in the Knowledge Hub.

Tax implications at retirement

When you take your benefits from any pension arrangement, they are checked against HMRC’s Lifetime Allowance (LTA). The LTA for 2023/24 is £1.073 million. If your pension savings are higher than this, then you can take the excess as either a lump sum or additional pension and it will be taxed as income at your marginal rate.

Financial guidance and advice

MoneyHelper offers money and pensions advice and is provided by The Money and Pensions Service which is sponsored by the Department for Work and Pensions. Pension Wise - This link opens in a new browser window is a free and impartial guidance service also provided by the government which aims to help you understand your pension choices and how they work. You can find out more on the Pension Wise - This link opens in a new browser window website and by telephone 0800 138 3944. You can also visit the MoneyHelper - This link opens in a new browser window and Money and Pensions Service - This link opens in a new browser window websites for more information. 

You should access the pensions guidance services and consider taking independent financial advice to help you understand the choices available and decide which option is most suitable for you. Information about financial advisers in your area is available on the MoneyHelper - This link opens in a new browser window website.

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