Taking money out of your pension plan soon? Here's what to think about

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Taking money out of your pension plan is a big decision. Our guide can support you in considering when you can access money from your pension savings and how to go about it.

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When the time comes to take money out of your pension pot, it’s important you feel confident you understand your options, when you can access your money and how your decisions might affect the tax you pay and how long your money will last.

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Taking money out of my pension plan – where do I start?

Knowledge is power as the old saying goes, so get familiar with your options before you plan to take any money from your pension savings.

To help you make the most of your pension savings, ensure you have an up-to-date value of your pension plan (or plans) from your provider(s) and find out what features, benefits and charges are included. You can often do it online, and if you’re a Standard Life customer you can log in or register for online services here.

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Some steps to take before taking money out of your pension pot

• Find out more about pensions and retirement on our website; and sign up to join one of our free online webinars
• Get an up-to-date valuation from your pension provider
• Pension Wise, a service from MoneyHelper, offers free impartial pensions guidance from age 50 which can help you understand your options. MoneyHelper also has useful tools for understanding how much money you may need in retirement
• It’s not right for everyone, but consider whether consolidating all your pension plans into one place might be a good idea for you. Find out more on our pension transfers page.
• Discuss your money and your plans with your adviser if you have one. If you don’t but you are interested in getting one, you can find a list of advisers on unbiased.co.uk - an independent site that can help you find the right adviser for you. Please note there’s normally a charge for financial advice

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When can I access my pension money?

You can normally start to take money out of your personal or workplace pension savings from age 55 (rising to 57 in 2028) and it’s up to you how much you take and when you take it. Bear in mind that your State Pension is different. It’s paid by the Government based on your National Insurance contributions and the State Pension age rose to 66 last year and is due to increase to 68 between 2044 and 2046. 

When it comes to your personal or workplace pension plans you don’t have to take any money out at 55, and the longer you leave it invested, the more it has a chance to keep growing. But remember that a pension plan is an investment and its value can go down as well as up.

You also don’t have to take it all at once, it can be tax efficient to keep your savings in your pension plan, and only take what you need in any one tax year.

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And can I take it if I’m still working?

With some pension plans you can access your money as and when you need it to ease yourself into retirement. This can include using it to top up your salary while you’re still working.

If you’re planning to take money and keep saving into your pension savings tax efficiently, there are extra things to think about. You can find out more in our article Can I take money from my pension plan at 55 and still work?, including details about how the Money Purchase Annual Allowance might affect you.

Pension plans are also about meeting your long-term needs, so if your current pension plan isn’t offering what you want for your retirement goals, you might want to consider moving your pension savings to another pension plan or provider.

If you would be giving up any valuable guarantees or benefits on your current plan, for example a Guaranteed Annuity Rate, this may not be the right thing to do. So speak to your pension provider or take advice before you take any action.

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What are my options when I am taking money out of my pension plan?

There are several to choose from, but you need to consider your goals and how long you might need your savings to last. The main options usually available to you are:

• Take a guaranteed income for life – also called an annuity
• Take a flexible income as and when you need to – often called ‘pension drawdown’. If you choose this option, you will need to decide how to invest the money that you are leaving in your pension plan
• Take it in lump sums or all in one go – you choose to take some or all your money at once. You should carefully consider how much income tax you may pay if choosing this option
• Or mix your options

Our Ways to take your pension money guide can help you understand the options.

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Get the best deal for your pension savings – and shop around

You might not realise this, but you don’t have to access your pension savings with your existing provider(s).

Once you know how much is saved and what features and charges you have in your pension plan, as well as how you’re planning to use it, you should shop around to get the best deal for you, which could mean higher benefits.

Consider choosing a provider that gives you all the options you need for your retirement and your money on your death.

Check out comparison websites, contact companies directly and use Pension Wise, a service from MoneyHelper, before making your decision. You can usually get some guidance over the phone or face-to-face.

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How long does it normally take to access my pension money?

Because a pension plan isn’t like a bank account giving you instant access, it makes sense to plan ahead at least a few months before you want to start taking your money. You can spend that time getting to know your options too.

Check out your chosen pension provider’s website and set yourself up online if you can – it is usually straightforward to do. 

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How much can I take out of my pension pot as a tax-free lump sum?

You can usually take 25% of your pension pot free of income tax. This can differ depending on the type of pension plan you have, so check with your pension provider how much you’re entitled to.

You can either take your tax-free lump sum in one go, or take it out across different tax years to help you manage your income tax efficiently each year.

Not all pension plans let you do this – with some you have to take your tax-free lump sum all at once.

Or don’t take any sum at all if you don’t need it and leave it invested with the opportunity to keep growing.

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Think about the tax you’ll pay

Whichever way you plan to take out your pension money, you need to think about tax, as there may be income tax to pay on any money you take out over your tax-free entitlement.

Take all your money at once and you could pay more income tax than you need to. Take it over a number of years and it is likely to be more tax efficient which means you get to keep more of your money.

It’s also important to consider the pension lifetime allowance, which is the total amount of pension benefits that you can build up during your lifetime across all pension schemes before an additional tax charge applies. The tax charge takes effect when you take your pension savings, or when you reach 75. Find out more in our pension lifetime allowance guide.

Tax can be complicated and you may want to read more from Pension Wise, a service from MoneyHelper, or read our guide to taking cash from your pension plan. 

It’s important to note that laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.

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So, how do I actually take out my pension money?

You can normally take money from your pension pot yourself online – just log in if you have a Standard Life pension plan. Or in some circumstances you may want or need to call.

If you’re not registered for online services, you can sign up – again it makes sense to do this in good time.

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When and why would I need to choose my pension investments?

If you plan to take your pension money as a series of lump sums or flexibly as an income, the remaining money in your pension pot is invested – normally in funds.

You need to make investment choices, as the rest of your pension money is invested in funds that you choose. And even after you start taking your pension money, it’s important to regularly review your investments to make sure they’re still right for you and your goals. You can read more in our article How to choose the right retirement investment options.

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What else do we suggest you think about?

1. You need your money to last

Whatever you decide to do, you need to think about how long you need your pension savings to last. Our pension calculator can help you work out how much you might need in retirement.

2. Be pension scam smart

When it comes to any savings, if you come across any ‘too-good-to-be-true’ investment opportunities, they are very likely to be a scam.

Always check with the Financial Conduct Authority (FCA) to see if a company or individual is authorised to provide investments and be very wary of high-pressure sales tactics and unregulated ‘opportunities’ – such as diamonds, land, forests, and real estate, particularly overseas. You aren’t protected by the FCA as many people have found out to their cost. MoneyHelper also has guidance on the types of scam to look out for.

3. Consider your legacy: Your Will and your pension savings

Money in your pension plan can be passed on more tax efficiently than ever, depending on what type of pension plan you have, who you want to leave your pension savings to and the age you die.

Your Will doesn’t normally cover your pension savings – so it’s important to tell your pension provider who you want your money to go to on your death. You can do this by nominating your beneficiaries and keeping them up to date. You can nominate the people – or charities – you’d like to get your pension savings, either online or by contacting your provider. They’ll take your wishes into account but cannot be bound by them.

Leaving money to loved ones can be a complex area, so make sure you understand how to pass your wealth on tax efficiently to whomever you want. 

Who you leave your money to also has tax implications and it makes sense to take advice on this. There’s likely to be a cost for this.

4. Think about the impact of any decision on means-tested state benefits

Any benefits you currently receive can be reduced or stopped entirely if you start taking any money from your pension savings. It could also affect any future benefits you may be entitled to, such as help with long-term care.

If you think this could affect you then check with the Department for Work and Pensions.

5. Get to know your State Pension

Knowing what you could get in the future can help you plan. Find out more on what you could get and when by checking your State Pension forecast.

6. Find any lost pension plans

If you think you’ve lost one, all you need is the name of your employer or pension provider to get started. If you don’t have those, you can use the Government’s online Pension Tracing Service. You can read more in our article How to find old or ‘lost’ pension plans.

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Still not sure what’s right for you? 

If you’re unsure what’s right for you, consider getting financial advice. It could make a big difference to your money and your peace of mind.

Although there will likely be a cost, it could save you money in the long run.

If you don’t have an adviser, you can find one in your area at unbiased.co.uk or you can find a list of regulated advisers on the FCA website.

This article shouldn’t be taken as financial advice and is based on our understanding in May 2022.

Standard Life accepts no responsibility for information contained on external websites. This is for general information only.

Laws and tax rules may change in the future and your own personal circumstances, including where you live in the UK, will have an impact on tax.

The value of investments can go down as well as up and you may get back less than was paid in.