Can I get a pension from my vested benefits account?

When I reach retirement age, will I receive a pension based on the money in my vested benefits account like I would from a pension fund?

Hi there,

Money deposited in a vested benefits account can only be cashed out in full. You will not receive a recurring pension from the bank.

This can put you at a disadvantage if you are not employed ahead of retirement because your occupational pension savings are not in a pension fund which pays a lifelong pension. In this case, it will be up to you to manage the money withdrawn from your vested benefits account carefully to make it last throughout retirement.

If you live long after you retire, your pension savings may be depleted relatively early on in your retirement - even if you manage the money carefully.

Here are some alternatives for people who expect to live long after retirement or have difficulty managing their money:

1. Vested benefits foundation. Some vested benefits foundations, such as Indepenent (Pensexpert), pay out a pension based on a percentage of your vested benefits. If you prefer to receive a guaranteed, lifelong pension rather than a lump sum, transferring your vested benefits to a vested benefits foundation which provides the option of a lifelong pension can make sense. The pension you receive in relation to your pension savings will generally be lower than the pension you would receive from a pension fund. That is because vested benefits foundation are not reguired to use the minimum legal conversion rate. However, a vested benefits foundation pension is normally higher than a life annuity from an insurance company. Like a pension from a pension fund, the pension you receives is 100% taxable.

2. Life annuity. A life annuity is an insurance policy which pays out recurring benefits from the time you reach a predetermined age until the time you die. Many life annuity policies can be purchased with a single, large premium. That means it is possible to use all or part of your vested benefits to purchase a life annuity policy after you close your vested benefits account. The conversion rate used to determine the annuity you receive is generally lower than that used by pension funds. It is also worth noting that, when your vested benefits must be taxed after withdrawal, and 40% of each annuity you receive also qualifies as taxable income.

Best regards from Moneyguru

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