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Retirement options

Your options from the DB Section are:

Take your full annual Plan pension, paid monthly

Take a tax-free cash lump sum (capped at £268,275) and a smaller annual Plan pension, paid monthly

Or, if the value of your benefits is less than £30,000, you may be eligible to take a one-off payment of all your Plan benefits.

Exchanging pension for cash

How much pension you need to give up in exchange for cash can change over time because the exchange rate is affected by assumptions such as life expectancy and what’s currently happening in the economy. This means that if you get a retirement quote, the cash sum can change from one year to the next. For more information, please read the actuarial factors guide.

 

Before making any decisions on how you take your benefits you may wish to take guidance or financial advice to help you understand your options and decide what’s right for you.

 

Options for your AVCs

 

Your Additional Voluntary Contributions (AVCs) are flexible. You can use the money you’ve built up from your AVCs in the way that’s best for you.

Cash lump sum

You can usually take up to 25% of your total retirement savings as a tax-free cash lump sum (capped at £268,275). If you take this from your AVCs, your annual pension will not be reduced by as much.
You can also choose to use your AVCs to provide retirement income through either flexible income drawdown, an annuity, cash or a combination of options.

Flexible income drawdown

Where you keep your savings invested and take out money as and when you want to.

You can transfer your AVCs to a drawdown provider of your choice. Compare their services to find the one that’s best for you.

The Plan offers a drawdown transfer arrangement with Legal & General. Find out more about the L&G Mastertrust Pension Access Scheme.

Annuity

Pays you a regular, guaranteed income for the rest of your life.

You can buy an annuity from an insurance company of your choice.

You can get different types of annuity, and you can shop around for the best deal, like you would for your home or car insurance.

Once you’ve bought an annuity, you can’t change your mind.

Cash

You can take all your AVCs as a one-off cash lump sum.
Only 25% of the total value of your pension benefits (capped at £268,275) is available to you tax free, and you’ll pay tax on the remaining amount. This is the only option that can be paid directly from the Plan.

A combination of the above

You don’t have to choose just one of these options. You can mix and match them to suit your circumstances.

For example, you might want to use drawdown and cash at the start of your retirement when your expenses might be higher, but then later buy an annuity, if you no longer want to manage your retirement income yourself. It’s completely flexible and up to you.

Making a choice

Each of these options has advantages and disadvantages, so it’s a good idea to consider each one carefully in relation to your own situation. You may wish to take guidance or financial advice to help you understand your options and decide what’s right for you.

If you take a lump sum to begin your pension but then change your mind, please be aware that the tax consequences can’t be reversed. This means that your lump sum allowances will be reduced (even if you’re returning the lump sum to the Plan) and you may incur an unauthorised payment charge.

 

To make the process of transferring to a drawdown arrangement smoother for our members, the Plan offers an income drawdown transfer option with Legal & General.

 

The Trustee has checked the L&G Mastertrust Pension Access Scheme and selected it from a range of options.

 

It’s a defined contribution pension scheme, which, like the Plan, is managed by a board of trustees who are legally bound to look after your money. The difference is that you can take income drawdown directly from the L&G Mastertrust Pension Access Scheme.

 

How it works

You can choose for your AVCs to be transferred from the Plan and paid into the L&G Mastertrust Pension Access Scheme. As part of our arrangement with Legal & General, our Plan members are offered customised terms at a competitive rate.

 

This could be for you if you’re thinking about investing in a drawdown arrangement to access your AVCs but don’t want to choose a different provider from the market.

 

Retiring early

You can start taking your pension benefits at any time from age 55 (this is increasing to age 57 from April 2028).

If you choose to take your pension earlier than your normal retirement age, it will be reduced to allow for the fact that it will be paid to you for longer.

 

How much pension you need to give up for each year that you retire early can change over time because the reduction factors are affected by assumptions such as life expectancy and what’s currently happening in the economy. This means that if you get an early retirement quote, it can change from one year to the next.

Retiring late

 

You can start taking your pension later than your normal retirement age but before age 75.

 

It will be increased to allow for the fact that it will be paid to you for a shorter amount of time.

How much extra pension you receive for each year that you retire late can change over time because the factors are affected by assumptions such as life expectancy and what’s currently happening in the economy. This means that if you get a late retirement quote, it can change from one year to the next.

Flexible retirement

 

You can start taking your pension but continue working for Cummins. If you want to carry on building up benefits, you can join the Defined Contribution (DC) Section of the Plan. For more information, speak to your local People Support team.