Your pension options
If you're 55 or over and have a defined contribution pension (also known as money purchase), you can access your pension pot in a number of different ways.
What are my options?
You can choose from the following options or mix and match. Not all pension schemes or providers offer the same options - make sure you shop around before making any decisions.
1. Leave your pension pot invested
You don't have to use the money in your pension pot as soon as you reach retirement age. You can choose when to start using it. If you don't need your pension income now you can leave it where it is, which may give it more time to grow.
Not all providers offer the same options, so you should check carefully before deciding what to do and get financial advice if necessary. The value of anything you leave invested can go down as well as up, depending on how it performs. Also, some of the choices you make now may be irreversible, and that could affect your retirement income for the rest of your life.
2. Take an income from your pension
Once you reach retirement age, you can choose to use some or all of your pension pot to buy a product that pays a regular income. There are many ways to do this, you can choose from the full range of retirement products and options offered by all providers. Depending on your circumstances, health and lifestyle, you may be able to get a better deal elsewhere.
The main options are:
|Flexible income drawdown|| |
|Lifetime annuity|| |
Fixed term annuity
3. Take all your pot as cash in one go
Once you reach retirement age, you can choose to withdraw as much or as little cash from your pension pot as you want. The first 25% will be tax-free and the rest may be taxed as income.
Think carefully before you do this. It may be tempting but remember, what you decide now could:
- Result in a large amount of tax being deducted before we pay you your withdrawal.
- Reduce your entitlement to any income-related state benefits you are already receiving.
If you choose this option, it will affect your retirement income for the rest of your life, and the choice you make could be irreversible.
"Cashing in your pension pot will not give you a secure retirement income. Get guidance from Pension Wise followed by financial advice before you commit."
- Money Advice Service
4. Take cash from your pot in stages
You can take cash from your pot in stages – the first 25% of each cash withdrawal will be tax-free, the rest will be taxed as income. By taking it in stages, you may be able to access your money more tax efficiently.
Withdrawals directly from your pension
- The money you leave invested in your pension pot could rise or fall in value depending on how investments perform.
- This option won’t automatically provide a regular income for your spouse, registered civil partner or dependent after you die.
- Once your pension pot is exhausted, it is gone for good. It's vital that you ensure your money lasts. Get free guidance from Pension Wise followed by financial advice before you choose this option.
5. Combine your options
You can combine the above options so that your overall solution meets your individual circumstances and needs as closely as possible. Whether that’s taking advantage of tax-free cash, leaving part of your pension pot invested or purchasing a regular income, it’s up to you.
What else do I need to know?
The information on this page is general, and not all of these options are available on all pension products. You'll need to contact your pension provider to find out what options are available under your plan. If you have a Legal & General pension, we can send you a pack with details of the options specific to your plan.
For more details, please see How can I access my Legal & General pension pot?
It's an important decision and with some options, once you've chosen them, you can't change your mind later. You'll need to consider any implications for the tax you pay and any state benefits you receive. You also need to ensure that you have enough retirement income to live on.
Ready to find out more?
Choose one of the options below.
Our case studies illustrate the different options available and important considerations.