How it works

If you choose a USP as your preferred option, you can take part of your pension fund as a tax-free lump sum. The maximum you can have is 25% of your fund value (unless you have a protected pre-6 April 2006 entitlement in excess of 25%). You are then able to draw a regular income from the remaining fund (which stays invested). This income can be between the maximum level allowed and zero, as described above.

Your income is subject to income tax. The remaining part of your invested pension fund continues to enjoy the favourable tax environment offered by pension schemes. The aim is that the returns on your invested fund will make up for all or most of the charges, any ‘mortality drag’, and be sufficient to sustain your income.

If investment returns are lower than expected, you may find that your fund has fallen in value, which may mean you have to accept a lower income in future.

At age 75 you must use the remaining pension funds to either purchase a lifetime annuity or enter into an Alternatively Secured Pension (ASP).