While retiring might not be the right thing for you at the moment, knowing what your choices are can help you plan for your future.
As you move into your 50s and 60s, giving yourself time to think about when to stop work and what’s important to you are key to planning a successful retirement.
Some things to think about are:
- When do you want to retire?
- Do you have a partner who’s also going to retire?
- Do you have any dependants you need to provide for?
- What’s your health like?
- Do you want to manage your retirement income yourself?
- Do you have any other pensions or sources of income?
- Do you have debts or a mortgage to pay off?
Your savings in the Plan are flexible. You can use the money you’ve built up in your pension fund in the way that’s best for you. You can take up to 25% of your savings as a tax-free cash lump sum (capped at £268,275), and then use the rest to provide a taxable retirement income in one of the following ways:
- Flexible income drawdown – you transfer your pension fund to a drawdown provider of your choice, where you keep your savings invested but can take out money as and when you want to. There are different drawdown providers, and you should compare their services to find one that’s best for you.
- Annuity – you use your pension fund to buy an annuity from an insurance company of your choice. An annuity pays you a regular, guaranteed income for the rest of your life. 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 pension fund as a one-off cash lump sum. Remember, only the first 25% (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 these – you don’t have to choose just one of these options but can mix and match them to suit your circumstances if you like. 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.
Each of these options has advantages and disadvantages. Therefore, it’s a good idea to consider each one carefully in relation to your own situation and get some guidance before making a final decision.
Is your pension fund invested in the way that matches how you plan to use your savings, so that it’s in the right place to suit your choice when you retire?
If you’re using one of the lifestyle options, check that it’s targeting the choice you’ll make for taking your money (drawdown, annuity or cash) and that your target retirement age is correct.
If you’re using the self-select funds, you might want to check the level of risk in your investments to avoid any unwelcome surprises from sudden falls in the market close to your retirement.
Choosing how to take your savings from the Plan is a big decision, so it’s well worth giving yourself plenty of time to think things through without rushing.
In fact, it’s so important that we’re required to check that you’ve taken appropriate financial advice or guidance before the administrator can process your retirement choices. Neither the Trustee nor the Company can give you financial advice.
From the age of 50, you’re entitled to a guidance session about your retirement options from Pension Wise, which is a government service provided by MoneyHelper. It’s completely free and is available online, in person or over the phone. Your adviser will talk you through the different options and help you understand what’s right for you. You can book your Pension Wise appointment yourself on the MoneyHelper website or you can ask the Plan administrator to help arrange one for you.
When you’re thinking about your retirement choices, Premier’s Gateway2Retirement service is available to you at a subsidised rate. It offers financial advice about all your options, tailored to your circumstances, including buying an annuity, moving into flexible income drawdown or taking cash.
Unlike Pension Wise which offers guidance, Gateway2Retirement provides financial advice. There is a charge for this, but Cummins pays the first £250 towards it. Your Gateway2Retirement adviser can help you research the market to find an annuity or drawdown provider.
Independent financial advice
If you prefer, you can of course use your own independent financial adviser, but this will be at your own expense. Make sure you use a certified adviser who’s specifically qualified to give advice about pensions. You can find an adviser in your local area by going to VouchedFor or Unbiased.
Watch out for scams
Sadly, scammers are continuing to target pension pots of all sizes, so please be vigilant when you’re making your retirement decisions. Around half of all pension savers don’t believe they’re at risk of being targeted by a pension scammer, but scams can happen to anyone, and no pension pot is too small for a scammer.
Common pension scams include early pension release or a free pension review. Make sure that you always:
- reject any out-of-the-blue contact about your pension or investments
- check the Financial Conduct Authority’s warning list
- avoid being rushed into any decisions
- get impartial advice.
Don’t let a scammer ruin your retirement. There’s more information on the Pensions Regulator’s website about pension scams and how to avoid them.
As you approach retirement, you might like to come along to one of our retirement workshops. They’re usually held on request at your local workplace and are open to all UK employees over the age of 50. If you’d like to bring your partner too, they’re most welcome.
We look at a range of retirement topics to help you plan for a successful retirement from understanding your income needs to budget planning, investments and tax. We also look at life after work and how you might want to spend your time.
To find out when the next workshop is planned at your site, please contact your local line HR department.