What are the pension options at retirement?

If you are approaching retirement then you have a number of options for how to receive an income. You can sell your pension to buy a guaranteed income for life, or take money directly from your fund as and when you need it. It’s even possible to take all of your savings as cash.

The quick and easy guide to the pension options at retirement

This guide explains the main pension options available from the age of 55, including how to receive a secure income for life and the flexible option that lets you take money directly from your pension fund. Certain workplace schemes may have their own rules and restrictions, so it is worth asking your HR department if you are unsure. Towards the end of the page are answers to some of the common questions people have.

Headline facts at a glance

For most people, the earliest a pension can be accessed is from the age of 55. A quarter of the fund can be taken tax free, and the rest is taxed as regular earnings. In 2015 big changes were introduced to the way money can be taken from a pension, so you now have more choice than ever before.

Can you really take all of the money from your pension pot?

The restrictions on how much money can be taken from a pension have been removed, so it’s now possible to take as much, or as little, as you like. You need to be at least 55 years old and have a pension that allows it, which is the majority of private and workplace pensions. If you work in the NHS, armed forces, civil service, emergency services or education you may have what’s called an ‘unfunded’ public sector pension; these provide an income for life and don’t allow the flexibility that other types do.

Is it a good idea?

This is the big question and the answer really depends on your situation. If your pension pot is very small and won’t provide much income, then you may decide it’s better spent tackling something now. On the other hand, if you have no other sources of income then taking it all as cash could mean you struggle later on. And if you have what’s called a final salary scheme, cashing out would mean you give up benefits like an income for life.

Instead of taking all of your money out, you can leave it in your pension and simply take an income from it. The flexibility now offered means you can vary the amount you take if your needs change. There is a risk of running out of money if it isn’t carefully managed, though, which may be a risk you aren’t willing to take.

Are there options for a secure income?

Yes, if you would prefer to receive a set income for life you can purchase an annuity. This involves selling all or part of your pension to an annuity provider, and in return they pay you an agreed amount for the rest of your life. It’s important to know that there are different types and one may be better for your needs. For example a joint life annuity will pay an income to a family member if you die before them, and an enhanced annuity pays a higher income to people with certain health conditions.

It’s also worth remembering that if you sell your fund to buy an annuity you will not be able to leave your pension to someone else when you die.

Is it possible to have the flexibility and security?

Yes it is. Some people like to know they will always have enough to cover their bills, and then vary the amount of money they take from their pension directly as and when they need it. Another option is to use your pension flexibly at first, and purchase an annuity later. Annuities are currently irreversible, though, so you need to be sure it’s right for you before buying one.

Making the right decision with your pension can be difficult, especially with so many options to choose from. Our speciality is in helping people do exactly that, and the best part is it won’t cost you a penny to find out what we think is the best option for you.


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More information...

This guide has introduced the main options available if you are at least 55 years old. There are also answers below to some of the most common questions people have. If you still have unanswered questions at the end then you may prefer to talk to us on the phone.

Do these options apply to all pensions?

They apply to all private and most workplace pensions. You may have a final salary pension, which promises an income for life and other benefits, and if you want the flexible access you would first need to switch to a private pension. The truth is most people are better off keeping the benefits, so it’s important to get financial advice before making a decision. Some public sector schemes are what’s called ‘unfunded’, which you may have if you work in education, the armed forces, civil service, emergency services or NHS. These provide an income for life and the new rules do not apply to them.

Can I still pay into my pension after I have taken money out of it?

Yes you can, although taking money out of your pension could reduce the amount you can pay into your pension and receive tax relief on.

How much tax will I pay if I take money out of my pension?

Money taken out of your pension is added to your other income for the year and the tax is based on that. Your tax bill could be nothing or you could pay a rate of 45% if your total earnings in that year are high enough. A regulated financial adviser can tell you how much you would pay.

Call 0800 304 7288 for a friendly chat about your pension

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Frequently asked questions

Important information

A quick reminder that the tax you pay depends very much on the current rules and your personal circumstances, and so could change in the future.

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