In the past the majority of people retiring with DC pension pots had no alternative but to buy a lifetime annuity from an annuity provider (such as an insurance company) with at least some of their pension pot. A lifetime annuity is effectively a pension that is payable for life which may have pension increases applying to it, and a dependant’s pension payable at a certain level after death. However the cost of buying an annuity can be very high – which has a lot to do with the fact that interest rates are very low and the moment. This is why it is possible that fewer people will choose this option now that there are more flexible options available.

The option to buy an annuity still exists, but the rules about annuity purchase are being relaxed in order to allow annuity providers to come up with some interesting and innovative approaches that would not previously have been allowed. For example it may become possible to buy an annuity with variable pension increases, rather than increases that are fixed each year.

Annuity payments are taxed as income.

Under a flexible drawdown arrangement, a member can take up to a quarter of their DC pot as tax free cash and designate the rest of the pot for “flexible drawdown”. This part of the pot continues to be invested and the member can take income (known as “drawing down”) from the pot as and when they like. All of the payments that are “drawn-down” would be taxed as income.

It would be possible to use some of the remaining “DC pot” to buy a short term annuity which would provide a known income for up to 5 years.

Drawdown arrangements have been available in the past but only for people with big pension pots. They are now available to anyone, whatever the size of pot.

Under this type of arrangement a member can take their DC pension pot as a lump sum or as a series of lump sums over a period of time. A quarter of each lump sum payment is tax free, with the remainder taxed as income. The remaining pot continues to be invested until the point of payment.

Remember that the options will only apply if the Rules of a scheme allow, but the following table summarises the main differences

If you have any pension arrangements from when you were with previous employers that are entirely DC pension arrangements, then these new flexibilities may apply to those pensions. If you have any DC pots from when you were in a previous employers’ scheme that had other elements of benefits – for example a final salary scheme in which you paid additional voluntary contributions (AVCs) into a DC pension pot – then the new flexibilities might apply to that pot, but this will depend on the Rules of that particular scheme.

In your Unilever UK Pension Fund, your Investing plan account (if you have one) is a DC pension pot. The Rules of the UUKPF don’t allow these new flexibilities to apply in the Investing plan. However, the Rules of the UUKPF will allow you to transfer your Investing plan account out of the UUKPF and into, for example, a registered pension arrangement that will allow the new flexibilities, as long as you are at least 12 months away from your Normal Retirement Age.

• If you decided to transfer your Investing plan account out of UUKPF, then the rest of your benefits in the UUKPF – your Career average plan and Final salary plan benefits – could stay in the UUKPF.
• Alternatively you could consider transferring all of your benefits in the UUKPF (including your Career average and Final salary plan benefits). Doing this would be a very significant decision, not least because you would be giving up a defined and fixed pension based on a formula. This is not a decision to be taken lightly or without first considering some independent financial advice. In fact, if your transfer value is £30,000 or more than you will need to show proof that you have taken independent financial advice before you will be able to make the transfer.