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
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. | 25% of the money will usually be tax-free but the rest may be taxed as income. |
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. | The first 25% of each amount you take will usually be tax-free but the rest may be taxed as income. |
Take a flexible income 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. | You can usually take up to 25% of your pension pot tax-free but the rest may be taxed as income. |
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. | You can usually take up to 25% of your pension pot tax-free but the rest may be taxed as income. |
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.