It’s probably the biggest financial decision you’ll ever have to make as you begin winding down your career and contemplate retirement – how to withdraw the money you’ve saved for that very purpose.

But don’t be daunted because at Vanguard we hold your hand during the withdrawal process to make sure you always know your options. There’s no added cost either – unlike some other pension providers, we don't charge a fee when you want to start using your pension savings.

You can also hit the pause button at any time. Once you have signalled to us that you are ready to begin withdrawing money, you are under no obligation to see the process through to the end. You can start, stop, think about it a bit more, change your mind, start again – as many times as you want. You are always in the box seat.

What’s more, you can do it in stages. You can take out a lump sum – up to 25% tax-free – to use as you please and then leave the rest untouched and invested for several years to come. The choice is yours.

Or you can delay making any moves until you’ve shepherded your various pensions together under one roof, where appropriate¹, to reduce your costs and get a better grip of your overall finances. This way you can plan and budget more effectively to help your pension last longer, improve the return on your remaining investments and minimise any potential tax liabilities.

By having your retirement finances in one place you may also be in a better position to manage the transition from full-time work to retirement and take advantage of some (or all) of the tax-free cash available to you, at your own pace.   

So how would withdrawals work in practice?

You can start to take out money from your pension savings – technically, any ‘defined contribution’ pension, including all self-invested personal pensions (SIPP) and many workplace pensions – from the moment you reach the age of 55 (or 57 from April 2028).

You are under no obligation to do so straightaway and can wait many years before you start to withdraw money from your pension, but you have the option to do so if you want.

The first step is to request a retirement pack. Once you’re eligible to do so, this will be spelt out clearly on your Vanguard SIPP account home page under the section ‘Ready to withdraw?’ and can be generated automatically and downloaded onto to your mobile phone or computer. This pack includes information from the government on all the withdrawal options available to you plus details of how you can get free, impartial guidance – both over the phone or face-to-face – from Pension Wise, a government service.

If it’s your first time and you’re ready to proceed further, we’ll also hold your hand to set the scene for what will follow. All you have to do is make an online booking with one of our pension specialists who will explain and make sure you understand your various options and run through all the things you need to consider before taking the next step. 

Once you’re happy to proceed, it’s time to choose a withdrawal method. And with Vanguard, this means one of two methods:

• Flexible income (drawdown), where you withdraw up to 25% of your pension as a tax-free lump sum and then, if you want, also use the rest to pay yourself an income that you may have to pay tax on that is either monthly or irregular and at a time of your choosing

or

• Individual cash lump sums, where you can take all your pension in one go or withdraw smaller lump sums at your discretion, with a quarter of each amount completely tax-free and the rest treated as taxable income.

Alternatively, you can buy an annuity that pays a guaranteed income. We don’t offer these but you can transfer your pension to an annuity provider once you’ve chosen one. We can either pay you your tax-free cash first or transfer the whole amount to them. It's always up to you.

Once you’ve chosen one of our withdrawal methods, we'll then run you through an online checklist of key dos and don’ts, just to make double-sure you’re fully informed of all the potential issues and risks. In the case of flexible income (drawdown), we will also give you the option to just take from your tax-free cash for now.

Remember: you’re still an investor

After that, all that’s left to decide then is what to do with the money you still have invested. We’ll present you with a series of investment choices – from leaving your portfolio as it is to building a new one with our extensive range of funds. As ever, we’ll encourage you to consider our four investment principles when making your choices.

Alternatively – but only if you’ve gone down our flexible income (drawdown) route – you can let us put together an appropriate portfolio on your behalf by choosing one of our investment ‘pathways’, depending on what you want to do with your money in the next five years.

Based on your choices we’ll create a pension illustration for you, setting out your chosen withdrawal method and the impact it will have on your savings, after which you can book a second call with one of our pensions specialists who will talk you through your pension illustration, to make sure you are completely happy.

Only once you’re completely happy – and only then – do you then confirm your withdrawal request and have the money paid into your bank account. But if not, you can start the process all over again. It’s no problem. What matters is that you are totally comfortable with your choices.

I’ve been a pensions specialist for a long time and I know how pivotal a moment retirement can be in a person’s life. With the pension freedoms introduced in 2015 there are more retirement choices than ever before, which means the transition can be much more flexible and staggered.

With a Vanguard SIPP, we’ll not only save you money – you won't pay a penny more in drawdown as it’s all included in our low 0.15% account fee – we’ll also steer you through the process. We always tell investors to focus on what they can control. Well, this applies as much to when they’re withdrawing money from their pension as it does to when they’re still building up their retirement savings.

With us, you’re always in control.

 

¹ Defined contribution (DC) schemes, which nowadays includes most workplace pensions as well as SIPPs, are generally better suited to consolidation than defined benefit (DB) schemes. If in doubt, talk to a financial adviser.