Income in retirement

You can decide to start taking benefits at any time between ages 50 and 75 years old (minimum age will increase to 55 from 2010)

You can take up to 25% of the fund your contributions have created as a tax-free lump sum under current rules.

The remaining 75% of the fund is either invested to provide you with an income for life called an Annuity, or can be used to provide a flexible income through a “drawdown“ plan

The size of the income you generate depends on the size of your fund, the investment conditions at the time you choose to retire and any options you decide to incorporate into your income, such as regular increases.

You pay income tax on the money you receive from your personal pension. It is taxed in the same way as if you had earned it.

You may be entitled to a basic state pension which for this year is up to a maximum of £95.25 a week for a single person and £152.30 per week for a married couple.

The state pension rises by inflation each year, but will not usually keep up with the rise in National Average Earnings.

You may be entitled to a second state pension bought by a percentage of your National Insurance contributions.

The level of your second state pension (S2P) is determined by your earnings level and the number of years that you have contributed, or been credited with contributions, to the scheme.

You may have left the scheme some time in the past and redirected contributions to your own private arrangement - this is called 'contracting out'. If this is the case, you could begin to receive an income from this type of arrangement any time from age 50 ( 55 from 2010).

The self-employed do not qualify for a second state pension.

The Pension Credit is a means-tested benefit for people aged 60 or over.

It has two parts - a guarantee credit and a savings credit.

Guarantee credit - this tops up your weekly income to a guaranteed level.

Savings Credit - this is for people who have a small amount of income or savings.

You may be able to claim either part of the Pension Credit separately or together, depending on your circumstances.

The amount of Pension Credit you are entitled to depends on your personal needs and the income you already receive.

The basic state pension rates for the tax year April 2009/10:

One person

£95.25

Man with dependent wife

£152.30

Couples who have both paid full national insurance contribution

£95.25
each

Single person

£130.00

Married couple

£198.45

You can generate additional Income by carefully placing your money in tax efficient investments such as Individual Savings Accounts.

From the age of 50 (55 from the year 2010) through to age 75, you can also invest up to £3,600 a year gross in an 'immediate pension', without evidence of earnings. Subject to the eligibility rules, you can do this whether you are working or retired. This entitles you to a tax free cash sum and a guaranteed income for life, with tax relief on the contributions, allowing you to boost your income even if you're already retired.

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