What are the consequences of canceling my retirement annuity?

Many investors ask about "cancelling" their retirement annuity (RA), often during financial pressure or career changes. Let's clear up how RAs actually work and what options you have.

Understanding Your RA

First, it's important to know that an RA isn't like a gym membership or subscription that you can simply cancel. It's an investment vehicle designed to grow your wealth for retirement, and it comes with specific rules to protect your long-term financial security.

Your Options Today

If you're feeling financial pressure, you have several choices:

Pausing Your Contributions

You can stop making monthly contributions by making your RA "paid-up." Your existing investment continues working for you in the market, potentially growing through compound returns. You can restart contributions whenever your financial situation improves.

Accessing Some Funds

Since September 2024, the two-pot system has given investors more flexibility. Your RA is divided into two portions:

The retirement component (two-thirds of your savings) stays invested until you reach retirement age – this protects your long-term security. The savings component (one-third) can be accessed once per tax year if needed, though this should be carefully considered.

Understanding the Impact

Before making any changes to your RA, consider:

• Market Growth: Even without new contributions, your existing investment can continue growing
• Tax Efficiency: Your RA still provides tax benefits, even when made paid-up
• Future Security: Any reduction in savings today could significantly impact your retirement lifestyle

Remember that withdrawals from the savings component face two key impacts: they're taxed at your personal income tax rate, and you lose out on future compound growth.

Making an Informed Decision

If you're considering changes to your RA due to financial pressure, speak with our investment consultants first. They can help you understand your options and their long-term implications. Often, there are alternatives that can help you through temporary financial challenges while protecting your retirement savings.