Accessing your pension pot

Before you start accessing the money in your pension pot it's important to think about your income options and where you can go for guidance and advice.

There's plenty to think about before you start to take your retirement income. If you haven't decided when you want to retire, we can help:

Take stock of your money and get to grips with your pension savings
Use our retirement planner to get an idea of how much you'll need in retirement and if you're on track
Visit our Approaching retirement hub to learn more about retirement income and your options

Your options

Let's take a look at your retirement income options.

when you reach age 55 (rising to 57 from April 2028), you can take some, or all, of your pot as a cash lump sum. Usually 25% of your lump sum will be tax-free and the remaining 75% will be taxed as income. Any money you leave will remain invested until you're ready to access your pot again.

Using a pot of £10,000 as an example, you could:

take out all £10,000: £2,500 as a tax-free lump sum and the remaining £7,500 taxed as income, or
take £2,000 every year for five years: £500 of each £2,000 payment can be tax-free, the remaining £1,500 is taxed as income
take £5,000: £1,250 of it tax-free, £3,750 taxed as income, leaving the remaining £5,000 invested until you're ready to access more
or choose another option to suit your circumstances

Flexi-access drawdown is perhaps the most flexible way to access your pension money. This allows you to usually take up to 25% of your pot as a tax-free lump sum (for example, from a £30,000 pot you could take £7,500) while the rest of your pot stays invested.

You can then take regular and / or occasional lump sums as income for as long as your pot lasts. We won't charge you for this but a fee may apply with other providers.

Your pot will stay invested in the funds you've chosen until you take money out. If you want to change your investment funds, you can usually do this at any time, but you should check with your provider.

Staying invested means your pot may benefit from additional investment growth. This will help to build up your savings while you're taking out an income. It's important to know that the value of the investments that make up your pension pot can go down in value, as well as up.

Investment growth will depend on performance, as well as other factors such as charges, the rate of inflation and how much money you take out.

When you take money from your pension pot, you will need to think about:

how much you will need in the future
if your contributions are going to continue
how the charges could affect the value of your pot
how your investments might perform
what money you will need if you live longer than expected

You can use some, or all, of your pension pot to buy an annuity, usually taking up to 25% of the amount selected as a tax-free cash sum. An annuity gives you a guaranteed income for life, or for a set number of years, depending on the type of annuity you buy.

Types of annuity

A Lifetime Annuity will pay you a guaranteed income for the rest of your life.
A Flexible Annuity will allow you to vary your income, perhaps a larger amount now, and a smaller one later on.
A Fixed Term Annuity will provide you with a guaranteed income for a set number of years only.

You can also add other options like a pension for your spouse, partner or other financial dependents that will continue to be paid if you die before them. You could also choose your payments to increase each year, for example in line with inflation, or remain the same. Annuities can also be paid monthly, quarterly or even annually.

The income you get from an annuity is taxable and the amount of income your pension pot could buy might vary significantly. If you have any health or medical conditions, or relevant lifestyle factors such as smoking you may be entitled to a higher annuity income. No single provider offers the best rate in all circumstances so it's important you shop around to choose the best option for you. Even if you don't qualify for a higher income with one provider, you might with others.

Examples

We've put together some examples and case studies to help you.

Options	How will I be taxed?
Take your money all in one go You can take your pension pot in cash as a single lump sum. You don't need to stop working, but you would need to think about where your income will come from when you do stop. Read our case study.	25% of the money will usually be tax-free but the rest may be taxed as income. Learn more about tax on pensions.
Take your money in a series of cash lump sums You can leave your money invested and withdraw it as cash lump sums as and when you wish. The money left invested has the chance to grow, but it could go down in value too. If you take out too much, or your investment funds don't perform as well as you'd expected, you could run out of money before you die. Any money left in your pot will be left to your dependants in the event of your death. If you choose this option, you may wish to spread your withdrawals over a number of years to minimise the amount of tax you pay. Read our case study.	The first 25% of each amount you take will usually be tax-free but the rest may be taxed as income. Learn more about tax on pensions.
Take a flexible income You can usually take up to 25% of your pension pot as a cash lump sum and leave the rest invested to provide a flexible income, and occasional lump sums if required. This is often referred to as flexi-access drawdown. You can vary, stop, or suspend the amount you're taking at any time. You may be charged for varying the amount. The money left invested has the chance to grow, but it could go down in value too. If you take out too much, or your investment funds don't perform as well as you'd expected, you could run out of money before you die. Any money left in your pot will be left to your dependants in the event of your death. Read our case study.	You can usually take up to 25% of your pension pot tax-free but the rest may be taxed as income. Learn more about tax on pensions.
Get a guaranteed income You can usually take up to 25% of your pension pot as a cash lump sum and use the rest to buy a guaranteed regular income for a fixed period or for the rest of your life. This is known as an annuity. Annuities have a number of features, for instance you can arrange for payments to continue for your dependants after your death. Smokers and those in poor health usually get better rates because of their shorter life expectancy. Read our case study.	You can usually take up to 25% of your pension pot tax-free but the rest may be taxed as income. Learn more about tax on pensions.

Other tax considerations

If you want to make contributions into your pension plan after you’ve started taking an income, you’ll be restricted to paying in a maximum of £10,000 each tax year thereafter. This is referred to as the Money Purchase Annual Allowance (MPAA). You cannot carry forward any unused MPAA from the previous year.

Your allowances can change with each new tax year, depending on what the government sets out. Download our Tax Year Rates and Allowances booklet to keep up to date on what these allowances are, and how they could affect you.

How much will you need in retirement?

You can find out more about the cost of different lifestyles in retirement and use our tool to think about what your expenses might be.

Useful links

If you want to learn more about two ways to fund your retirement, read our article on annuities vs drawdown.
Before you start to access the money in your pension pot, you should get a clear idea of how much tax you'll pay on your retirement income.
If you're over 50, book an appointment with Pension Wise for free, impartial guidance.
It might be a good idea to speak to a financial adviser. If you don't have one, you can find one at Unbiased.

Key points

You can access your pot any time from age 55 (rising to 57 from April 2028), even if you're still working.
You can leave your pot invested even if you have stopped working.
You can take all of your pot as cash and usually the first 25% will be tax-free. The remaining 75% will be taxable.
Two main ways to fund your retirement are annuities and drawdown products.
It's important to shop around to find the best product and option for your needs, and to seek advice or guidance before you choose the right one for you.