Ways to take your Personal Retirement Account (PRA)

Thanks to pension freedoms introduced by the Government in 2015, there are now more ways than ever for members of a defined contribution (DC) scheme to take their savings.

In the RPS, the money you’ve built up in the Industry-Wide Defined Contribution (IWDC) section is known as your Personal Retirement Account (PRA). And you have three main options of what to do with it when you retire.

You can see a summary of these options in a video here and you can read about them in more detail below

A range of tools, including a retirement modeller, are also available within your myRPS account to help you consider your options.

What are your options?

You can:

• get a flexible income, taking it a bit at a time. This is known as drawdown 
• get a regular, secure income, known as an annuity
• take all of the money in your PRA as a cash lump sum.  We call this total encashment
  

These options all come with different tax implications, benefits and risks.   

What you receive, the fees you pay and whether you’re eligible for each option, may also be different depending on which provider you choose.

Other options may be available in line with pension freedoms. And you may be able to combine these options. However this is not offered directly by the RPS and would need to be facilitated by another provider.

Keep in mind that you may be an active IWDC member and still have preserved DB benefits, either with the RPS or another provider.  If this is the case and you take your benefits before age 55, then legally you must claim all of your benefits at once.

Understanding annuity, drawdown and encashment

The RPS doesn’t currently offer an annuity or drawdown option directly, so to access these you would need to transfer your PRA to another provider.

If you decide to transfer your pension you will likely lose your Protected Pension Age, if you have one.

You can find out more about your options by clicking here:

• Understanding drawdown
• Understanding annuity
• Understanding encashment

And by watching the video here:

Choosing more than one option

It is possible to mix and match your options, with a combination of cash, annuity and drawdown if you wish.

If you take total encashment from the RPS, the value of your PRA will be paid directly to you in one lump sum. You then have the freedom to choose what you do with it. If you take it as a lump sum 75% of the payment will be subject to tax. 

Total encashment can have significant tax implications, and by spreading your funds across different products you may dilute your retirement income. We recommend you seek financial advice before making any decisions of this nature.

If you choose to transfer to an annuity provider, your new provider may have the ability to move some of your benefits into a drawdown arrangement. The opposite could also be possible if you choose drawdown and want to put some in an annuity.  However you would need to discuss this with your new provider and it would only happen after your entire PRA had transferred out of the Scheme.

Whichever option you choose, you could also decide to take up to 25% of your PRA as a tax-free lump sum. 

If you opt for total encashment or an annuity, this lump sum would come directly to you from RPS.  If you choose drawdown, the lump sum would come from your new provider. 

Tax implications

Once you’ve taken some of your PRA there is a limit on how much you can keep saving in your pension before paying tax. This is known as the Money Purchase Allowance (MPAA).

It is usually triggered if:

• you cash in a pension pot worth more than £10,000
• take your pot through a flexi access drawdown
• use your pot to purchase a fixed term annuity
  

Where the MPAA is triggered, it means that the most you can pay into your DC pot in the future is £4,000 pa.

Making the right decision for you

If you’re unsure of the best way to take your Personal Retirement Account (PRA), then you may want to speak to an Independent Financial Adviser (IFA).

Liverpool Victoria (LV) has been chosen as the official partner to give RPS members access to financial advice. LV can be contacted on 0800 023 4187.  

You are still free to choose your own Independent Financial Adviser (IFA). You can find an IFA in your area at unbiased.co.uk

A range of planning tools are also available within your myRPS account to help you consider your options. For IWDC members this includes:

• a retirement modeller - showing what your pension might be worth when you retire and the different ways you can choose to use that money
• a retirement budgeting calculator – showing how much money you might need for your retirement

 Login or register here to find out more.

What if I’m not ready to take my benefits yet?

• You can delay taking your benefits up to age 75.
• This may increase your benefits when you decide to take them, although there are risks involved
• The risks are similar to all investments.
• If the value of your Personal Retirement Account (PRA) goes up, then you might be better off, however, the value can go down as well as up. So it’s possible that your retirement income may be lower than if it had been paid from an earlier retirement age
• If you die, the funds still in your PRA can be used to either provide a pension for a dependent or go to your estate. If you die before age 75, your beneficiary can receive lump sums or income from your PRA tax-free
• A tax charge will only be incurred if there is a Lifetime Allowance charge or if the account is not paid to a beneficiary or your estate within two years of your death. You can read more about the Lifetime Allowance in our ‘Tax Limits – Lifetime Allowance’ guide, here
• If you are aged 75 or over when you die, your beneficiary will pay income tax at their highest tax rate on any funds taken as income.
• Your beneficiary could also choose to receive a lump sum payment from your PRA which is subject to a tax charge at the recipient’s marginal rate of tax.