Traditionally workers used their DC ‘pension pots’ to purchase an annuity from an insurance company at retirement. This is essentially a ‘guaranteed income’ that is payable for the rest of your life.
There are numerous options for annuities. These include the frequency of the payment, if payment is in arrears or advance, how the payment increases during retirement if at all and if there is a spouse’s pension payable if they survive you.
Under Pension Freedoms introduced by George Osbourne during the Coalition Government, restrictions on how members can draw on DC pensions were lifted. Flexi-access drawdown and UFPLS are now popular options.
Flexi-access draw down allows you to draw a regular adjustable income from your ‘pension pot’. This is not guaranteed and may need to reduce to ensure the money is not all spent before your retirement ends.
UFPLS is the technical name for taking cash from your ‘pension pot’ in chunks.
There are also rules for workers with a very small amount of money in a pension scheme.
In practice workers with only DC Pensions will likely draw their pension using more than one of these methods.
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