Pick your way through the retirement maze:

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If you're confused about the options for your pension after April, 6 you're not alone


If you’re confused about the options for your pension after April, 6 you’re not alone. Some of the biggest pension firms are still struggling with the new rules.

The good news is that anyone aged over 55 who has not yet bought an annuity will, in theory, have a tremendous amount of freedom over their pension.

In practice, much will depend on the type of pension you have and with whom it is held.

From April 6, there will be five basic options for those with private sector pensions:

• Stick with an existing defined benefit scheme paying a pension based on your final or average salary.
  

• Take an annuity to get a guaranteed income for life based on money saved in a defined contribution scheme.
  

• Take your tax-free lump sum and then have a taxable income direct from your pension pot.
  

• Take money from your pension as you choose and have 25 per cent of each payment tax-free.
  

• Take the whole lot at once with a quarter tax-free and the rest taxable at your highest rate.
  

So how will all this work?

Do you qualify to dip into your pot?

You must be aged at least 55. Anyone who tells you that you can get your pension at a younger age without facing severe tax penalties is probably running a scam.

You must also have the right type of pension. Broadly speaking, anyone can get to their cash unless they are in a public sector defined benefit scheme. These are also known as final or average salary schemes.

So if you have an Armed Forces, nursing, teaching, police or firefighters’ pension, or a similar public sector one, then you must stick with your existing arrangements.

Will the pension firms play ball?

The law will allow you to take your private sector pension in cash but your pension scheme does not have to provide this option.

Tom McPhail, pensions guru at broker Hargreaves Lansdown, warns: ‘Many employers will not be able to cope with the new arrangements because their systems are not set up to allow ad hoc payments.’

Also, defined benefit/final salary schemes may have no mechanism to convert your monthly, inflation-linked pension in to a lump sum.

http://www.thisismoney.co.uk/money/pensi...alone.html