What is a crystallised pension? | Pension Access (2024)

FAQs

What is a crystallised pension? | Pension Access? ›

A crystallised pension is one that has been cashed in via drawdown or an annuity. As I'm sure you know, the money in your pension is invested in the stock market.

Simply put, a personal or workplace pension becomes 'Crystallised' once you start to draw money from it. The opposite term 'Uncrystallised', is used to describe a pension that has been left invested until you're ready to start using it to draw an income.

As you do not need to crystallise your pot all at once, you could leave your pension uncrystallised and take only what you need each year. This means you will not be able to take your 25pc tax-free cash lump sum in one go, but instead will be able to take 25pc of however much you crystallise each time.

You can transfer crystallised funds between other schemes, but they must be transferred on a like-for-like basis. For example, if you're transferring a drawdown, it would need to be transferred to another drawdown. You can normally also use your crystallised drawdown funds to purchase a lifetime annuity.

Take cash lump sums

You can take your whole pension pot as cash straight away if you want to, no matter what size it is. You can also take smaller sums as cash whenever you need to. 25% of your total pension pot will be tax-free. You'll pay tax on the rest as if it were income.

Things to think about. Taking out one or more lump sum won't provide a regular retirement income for you or for any dependants after you die. You need to plan how much money you can afford to take with this option. Otherwise, there's a risk you'll run out of money.

A federal insurance agency, known as the Pension Benefit Guaranty Corporation (PBGC), insures most company and union pension plans up to certain limits if the plans run out of money. The guarantee limits for plans set up by a single company are different from plans set up by a union and a group of employers.

Perhaps the greatest risk of cashing out a pension early is the prospect of running out of money. A monthly payment offers a steady income for the remainder of one's life, and in some cases can also be passed on to a spouse.

What happens to your pension when you die over 75. HMRC pension rules confirm that once you reach age 75, your beneficiaries will be taxed after you pass away, and they will start taking benefits from your pension. This will be taxed as income at the beneficiary's marginal tax rate.

Refers to pension savings you haven't accessed yet in any way (so no lump sums, income etc). It normally also means your money hasn't been taxed yet.

Can I transfer my pension to my bank account? ›

For most pension schemes, it is not possible to access your pension until you are at least 55. You can, however, transfer to a new provider at any time. But if you're 55 or older, you can move your pension into your bank account. Even then, though, it is unlikely to be a good idea to take all of your pension in one go.

If you're retired or over 65 years of age and have a retirement phase pension you are also eligible to take lump sum withdrawals.

Are there any charges to move my pension? Some schemes might apply charges, including an exit charge, when you transfer out. You should also take into account any set-up charges and ongoing charges on the new pension scheme you plan to transfer to.

Joint and survivor options are often best for those who are married, older than their spouse, or in poorer health than their spouse. To help mitigate premature death risks while still receiving a higher payment than joint and survivor amounts, you can also choose a single-life annuity (either term or period certain).

From 1 July 2024, the full pension is available, under the assets test, for homeowner singles whose assessable assets are under $314,000 – for homeowner couples the number is $470,000. The numbers for non-homeowners are $566,000 and $722,000 respectively.

You need to think very carefully about whether cashing in a pension is the right option for you as taking a cash lump sum out – even if it's a small one – could push you into a higher tax bracket, leaving you with a potentially hefty tax bill to pay.

A pension becomes 'crystallised' as soon as you withdraw a retirement income from your pension fund. A pension crystallises when you get access to your pension savings and you cash it in. The earliest you can crystallise your pension is currently at 55, unless you get early access due to ill health.

If you take the distribution before age 59½, you may also owe a 10% early withdrawal tax penalty. You can use some or all of the lump sum to purchase an annuity—typically, an immediate annuity—which could provide a monthly income stream, as well as inflation protection or other optional features built into the cost.

How income drawdown works. Income drawdown is a way of getting pension income when you retire while allowing your pension fund to keep on growing. Instead of using all the money in your pension fund to buy an annuity, you leave your money invested and take a regular income direct from the fund.