Finding an option that's right for you
When it comes to taking money from your pension plan, you have a number of options. You can take a cash lump sum, set up a regular income, leave it for now and keep the money invested or a combination of all three.
There’s a lot to think about, but this quick options tool breaks down all the ways you can take money from your pension plan.
Which options do you want to sort?
Need to use your pension in retirement or prefer to leave it to family?
How much cash are you thinking of taking?
Would you prefer your income to be guaranteed for life?
Is it important you can dip into your pension or adjust your income?
How do you want to spread out your retirement income?
Simply answer the questions to help you decide what options are most relevant for you.
Click an answer above to see some ideas
Here are some options on how to use your pension pot:
Dip in
Taking cash
Use your pension as and when you need it, before you retire to fund a need or dip in during retirement
- You can take cash whenever you like from age 55 (rising to 57 on 6 April 2028); normally the first 25% is tax-free
- No need to take it all at once
- Your remaining pension stays invested
- Any remaining pension can pass to partner, family or friends when you die
For people who:
- Want the flexibility to take money out as and when they like but don't need a regular income
- Are comfortable taking some investment risk
- Want to pass on any remaining pension to their spouse, partner, family or friends when they die
Things to think about:
- The more you take out now the less you'll have in the future
- You pay tax on withdrawals above your tax-free cash - this could take you into the next tax bracket
- Once you take more than your tax-free cash, you will be more restricted in how much you or an employer can pay into this or any other defined contribution pension
- You may pay less tax if you spread withdrawals over a longer period
Cash-in
Taking cash
Take your whole pension as cash
- You can cash-in your pension whenever you like from age 55 (rising to 57 on 6 April 2028)
- Payments above your tax-free cash are liable for tax
- May restrict how much you can pay into pensions in future
For people who:
- Need to access their whole pension now
- Don't need to keep their pension to provide an income in retirement
Things to think about:
- The more you take out now the less you'll have in the future
- You'll normally pay tax on anything above your tax-free cash - this could take you into higher rate bands so you might be better off taking your pension over several tax years
- You'll normally be more restricted in how much you or your employer can pay into this or any other defined contribution pensions in future
Guaranteed income for you
Guaranteed income for life (annuity)
Guarantee income for the rest of your life
- Guaranteed for life
- Set up, sit back & relax
- An income just for you, not for your spouse or partner
- It's not flexible - once set up you can't normally change your income
- Normally up to 25% of the fund can be taken as tax-free cash
For people who:
- Want to know their income is safe for the rest of their life
- Don't need this pension to provide for a spouse or partner
- Don't need flexibility
Things to think about:
- You could get a higher guaranteed income if you smoke, have certain lifestyle factors, or have health problems
- It's very likely you'll get more money by shopping around. We would strongly encourage you to do this
- The income stops when you die, even if you have a spouse
- Nothing is passed onto your spouse, partner, family or friends when you die unless you pay for this at the start Guide to buying an annuity
Guaranteed income for two
Guaranteed income for life (annuity)
Guarantee income for two...you and your partner
- Guaranteed for you or partner's lives
- Protects your partner when you die
- Set up, sit back & relax
- It's not flexible - once set up you can't normally change your income
For people who:
- Want to know their income is safe for the rest of their and their partner's lives
- Want to leave a guaranteed income for their partner when they die
- Don't need flexibility
Things to think about:
- You could get a higher guaranteed income if you smoke, have certain lifestyle factors, or have health problems
- It's very likely you'll get more money by shopping around. We would strongly encourage you to do this
- The more income you secure for your partner, the lower the income will be at the start
- Nothing is passed on to family when you die unless you pay for this at the start Guide to buying an annuity
Blend
Flexible income (drawdown) then guaranteed income for life (annuity)
Take a blend, you could start with a flexible income then guarantee it later by fixing it
- Start with regular income you can change if you need
- Convert to a guaranteed income for life whenever you choose, then sit back and relax
- Options to protect your partner, family or friends when you die
For people who:
- Want a flexible income in early retirement
- Are comfortable taking some investment risk, at least initially
- Want to pass on the rest of their pot to their partner, family or friends if they die in the earlier years
- Expect to become more cautious in later life and want to know their income is safe for the rest of their life
Things to think about:
- You could get better annuity rates on your guaranteed income if you smoke, have certain lifestyle factors, or have health problems
- You may be able to improve your income by shopping around
- Once set up, your guaranteed income can't be changed
- Your flexible income is not guaranteed and will depend on investment performance
- There is a risk your fund value may drop while in drawdown meaning the annuity you can afford will be less which will impact the guaranteed income you can afford
- You may not be able to secure a guaranteed income at the same level as your flexible income
- If you die in drawdown, any remaining pension can be passed to partner, family or friends when you die. If you die after buying an annuity, nothing is passed on unless you set this up with your guaranteed income. Guide to buying an annuity
Adapt
Flexible income (drawdown)
Adapt your income to meet life's changes
- Regular income you can change if you need
- Any remaining pension can be passed to family or friends when you die
- No guarantees so your income stops when your pot runs out
For people who:
- Are comfortable taking some investment risk
- Want to pass on any remaining pension to their partner, family or friends when they die
- Want the flexibility to take income as and when they like
Things to think about:
- Your income is not guaranteed to last the rest of your life - it will depend on how your investments perform, the withdrawals you make, and how long you live
- Requires you to manage your income and investments actively which you can do online
- Once you take more than your tax-free cash, you'll be more restricted in how much you or an employer can pay into this and any other defined contribution pension
Boost
Flexible income (drawdown)
Make the most of your early retirement, boost your income by topping up other pensions
- A higher regular income for a shorter time
- Can make changes whenever you need
- Any remaining pension can be passed to family or friends when you die
- Potential for tax-efficient investment growth, however risks apply
For people who:
- Want to take more pension in early retirement
- Have other sources of retirement income to top up
- Are comfortable taking some investment risk
Things to think about:
- Your income is not guaranteed - it will depend on how your investments perform
- Taking your pension earlier means you may have less later on
- May require you to manage your income and investments actively which you can do online
- Once you take more than your tax-free cash, you'll normally be more restricted in how much you or an employer can pay into this and any other defined contribution pension
Bridge
Flexible income (drawdown)
Bridge the gap...retire earlier (after age 55, rising to 57 on 6 April 2028, but before your state pension age) by taking an income until other pensions kick in
- A regular income for a shorter time
- Can make changes whenever you need
- Any remaining pension can be passed to family or friends when you die
- No guarantees but potential for tax-efficient investment growth
For people who:
- Want to retire early or go part-time before retiring fully
- Have other sources of retirement income, for example a state or workplace pension
- Are comfortable taking some investment risk
Things to think about:
- Your income is not guaranteed - it will depend on how your investments perform
- Taking your pension earlier means you may have less later on
- May require you to manage your income and investments actively which you can do online
- Once you take more than your tax-free cash, you'll normally be more restricted in how much you or an employer can pay into this and any other defined contribution pension
Support
Leave it for now
Continue supporting your family or friends even when you die - pass on your pension inheritance tax free
- Can still set up an income or take cash if you need to
- Your pension can pass to your partner, family or friends when you die, normally tax-free if you die before age 75
- Normally not liable for inheritance tax - your pension stays outside your estate
- Your pension stays invested giving potential for tax-efficient investment growth, however risks apply
For people who:
- Don't need their pension to provide an income in retirement now
- Want a tax-efficient way to pass their pension onto their partner, family or friends
- Want the freedom to dip into your pension savings if they need to
Things to think about:
- If you die after reaching age 75, your family would normally pay tax at their marginal income tax rate when they take money from the pension (as you would if you took out money before your death)
- Your pension stays invested so you need to be comfortable taking some investment risk
Build
Leave it for now
Leave your pension with the potential to build and grow yet still have the option to take cash or income when you need
- Carry on paying in, benefiting from tax relief (up to age 75) while you're still earning
- Your pension stays invested giving potential for tax-efficient investment growth, however risks apply
- Can change your mind and take cash or income if you need to
For people who:
- Don't need to take cash or an income right now
- Want to carry on paying into your pension
Things to think about:
- Your pension stays invested so you need to be comfortable taking some investment risk
- Even if you're not earning, you can pay in up to £3,600 (including tax relief) each year
id
This information is based on our understanding of laws and tax rules applying from April 2023. These can change in the future
Your options at retirement and the tax you pay will always depend on your personal circumstances and where you live in the UK.
This should not be regarded as financial advice.
If you want to access some of the more flexible options, you may need to move to a different pension product first.
Pensions are investments and their value can go down as well as up and may be worth less than was paid in.