Here are the options, known as My ABC options:
| An annuity |
A traditional annuity allows you to use the pension savings in your individual account to buy a guaranteed income for life. You can still take some of your pension savings as a tax-free cash sum (normally up to 25% of the value of your individual account). The income you receive would be taxed in the same way as your pay was taxed – that is, under the rules for income tax. |
| A series of taxable cash sums or regular income |
You could decide to take the pension savings in your individual account bit-by-bit, as occasional cash sums or as regular income. This gives you the freedom either to set up a regular or irregular income from your savings, or take cash sums as and when you want, while taking advantage of tax allowances. (However, you would need to transfer your individual account from the Sky Pension Plan.) |
| A single taxable cash sum
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You could take all the pension savings in your individual account as a single cash sum. 25% of the cash sum would be paid free of tax; the rest would be taxed as in the same way as your pay was taxed – that is, under the rules for income tax. |
You could also choose a mixture of the above and use some of the pension savings in your individual account to buy an annuity, to give you the security of a guaranteed income, and take the rest bit-by-bit, as lump sums or income payments to top up your income as and when you need it. (To do this you would need to transfer your individual account from the Sky Pension Plan.)
The Government have set up a free and impartial service which gives you guidance on your options. Please visit www.pensionwise.gov.uk/ for more information.