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/ nominated dependant pension of 50% of your pension is payable on your death.

    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 click here.

    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.

    If you are unsure which section you are in, click here to find out.

  • Pension option through other providers

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

    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.

    Annuity
    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.

For full details on both MP03 Section and AE Section retirement options see the ‘Member handbook’.


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 Pearson) 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

Tax implications at retirement

When you take your benefits from any pension arrangement, they are checked against HMRC’s Lifetime Allowance (LTA). The LTA is the total amount you can have in all your pension arrangements without paying an additional tax charge. The LTA for 2020/21 is £1.073 million.

If the total of your pension benefits is more than the LTA, you are charged tax on the excess.

Financial guidance and advice
The Money and Pensions Service is a free and impartial guidance service set up by the government, which aims to help you understand your choices and how they work. You can find out more on the Money and Pensions Service website at moneyandpensionsservice.org.uk. You can also visit The Money and Pensions Service at moneyadviceservice.org.uk to find an independent financial adviser in your area.


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