Unsecured Pensions

updated: January 22, 2010

Following the introduction of ‘pension simplification’ on 6 April 2006 you can now take your pension benefits in the following ways:

(1) Purchasing a ‘secured pension’, that is an annuity (ie an income for life). This can be level or increasing.

(2) Purchasing an ‘unsecured pension’, that is a pension drawdown product, subject to simplified rules, but not after age 75. This option is the subject of this section of our website.

(3) Purchasing an ‘alternatively secured pension’ This is available from age 75 and is designed for people with religious beliefs which would prevent them from buying an annuity at age 75.

Originally introduced in 1995 under the name of ‘Pension Fund Withdrawal’, an unsecured pension plan allows you to take a pension commencement lump sum (also referred to as ‘tax free cash’) of up to 25% and an income from your fund whilst deferring the purchase of an annuity. Your pension fund remains invested and you draw an income from it each year if you want to. There is, in fact, no requirement for a minimum income to be drawn.

You have considerable flexibility in setting the amount you draw and can vary it (within the limits) from year to year to meet changing personal or financial circumstances. This system of drawing down income is available until age 75. Because you do not buy an annuity at the outset, you can keep your options open on ancillary benefits and do not end up paying for benefits which might not be needed. The pension fund remains under your control, so can be invested for growth or income, according to your objectives.

To obtain further information please click here for our pdf Guide to Unsecured Pensions.