Options for using your pension pot

There’s no one ‘right’ answer so take a look at all the options to see what might be best for you.

Get a guaranteed income for life (Pension Annuity)

You could be paid a guaranteed amount every month,  or year for life, so you'll always know exactly how much you're getting.

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  • Take up to 25% of your pot as a tax-free lump sum
  • Use the rest to buy a guaranteed regular income for life

  • Choices include a fixed or increasing income and how often it’s paid

     

 

Get a guaranteed income for a set period with a lump sum at the end (Fixed Term Retirement Plan)

If you like the security of a guaranteed income, but want to give yourself options later in life, this may be for you. It ends with a lump sum that you can use to make new choices.

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  • Take up to 25% of your pot as a tax-free lump sum

  • Use the rest to buy a regular income for up to 25 years with a lump sum at the end
  • The income stops at the end of the set period

Get a guaranteed income for a set period (Cash-Out Retirement Plan)

A tax-efficient way to take cash or use as a bridge to a future date when another source of income starts.

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  • Take up to 25% of your pot as a tax-free lump sum

  • Use the rest to buy a regular income for up to 25 years

  • The income stops at the end of the set period

Have a flexible income – pension drawdown

If you don't mind the uncertainty of investment risks, you can choose to move your pension into drawdown. This will mean your pension may benefit from investment growth and you can choose to take money out of it when it suits you, there may be a charge for this. How much and how often you take money is up to you but when you’ve taken it all there’s nothing left.

  • Take up to 25% of your pension pot as a tax-free lump sum
  • Invest the rest, with flexibility to use as you choose, subject on product terms and conditions
  • Your money is still subject to investment risk and the amount you have invested can go down as well as up

 

 

 

 

 

How does pension drawdown work?

Pension drawdown is when you choose to move some or all of your pension into drawdown and keep it invested. This may be in the same investments you had for your pension or it could be different investment funds. You can then take money out (drawdown) when it suits you. The more money you take out, the quicker your pot will run out. If you change your mind at a later stage and want a guaranteed income, then you could use whatever remains in the pot to buy an annuity or another suitable product.


 

 

 

 

Combine your pension options

You can combine some of these options, either at the same time, or one after another. This approach gives you plenty of control to meet your needs now and in the future

  • Take up to 25% of your pension pot in tax-free lump sums
  • Split the rest as suits your preferences, across different products
  • Build a more structured plan for each stage of your retirement

 

Cashing in your pension pot

Take up to 25% from your pension pot tax-free. The rest is counted as income in the year you take it, so you need to be careful, otherwise you could end up paying more in tax than you might need to. Ouch!

  • Take up to 25% of your pension pot in tax-free lump sums

  • The remainder is treated as taxable income so you need to be careful you don’t become eligible to pay more tax than you might need to
  • You’ll need to consider a suitable home for your pension savings once you’ve taken them all as cash

Leave your pension pot where it is

You don’t have to start taking money from your pension pot when you reach your selected retirement age, you could leave it invested.

 

  • If you don’t need your pension pot now, you don’t need to take it
  • When you use the pot you could have more money to use for less time
  • Your pot is still subject to investment risk and the amount you have invested may go up and down

Next steps

It’s worth running some numbers to see what the options might look like for you:

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Need some help?

Making decisions about how to finance your retirement is important so it’s worth shopping around and using available guidance and advice, before you buy.

Retirement guidance

Pension wise

The Government’s impartial retirement guidance will help you avoid the risks and think about what’s right for you.

Speak with us

Our colleagues in Cardiff are always happy to help with your questions or to help you apply for a quote.

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