Learn about accessing your pension pot
Choosing when and how to take money from your pot is one of life’s big decisions. Here we explain the main ways you can take an income or lump sums from your pension pot.
You've worked hard to pay the money in over the years, and you want to be sure you're making the right choices so that your future is secure and you're prepared for the different phases of your retirement.
If you haven't thought about the type of lifestyle you want in retirement or what your retirement plan might look like, we can help.
Go&Retire
You can find out more about planning for the different phases of your retirement in our Go&Retire section.
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.
You can access your pension savings at any time from age 55, whether or not you've stopped working. You can also delay taking money from your pension pot.
If you are close to your chosen retirement age and decide you want to keep paying in for a bit longer, you might be able to but check whether the rules of your scheme allow this.
If you have to stop working due to ill health you may be able to take your benefits early.
Depending on your pension scheme's rules, you may be able to take cash lump sums, or variable amounts to give you an income (known as flexi-access drawdown), or a guaranteed income (called an annuity). Your scheme may allow you to mix and match these options.
From age 50 you are entitled to free and impartial guidance with a pension specialist from Pension Wise, a government service from MoneyHelper. You'll talk about the options you have for taking your pension money. You can book a free appointment online.
We've also put together a video guide to talk you through the basics.
Your options
Let's take a look at your retirement income options.
Examples
We've put together some examples and case studies to help you.
Option
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 do not 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 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.
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 start accessing some of your pension savings whilst still contributing to a pension plan, perhaps if you are still working, the amount you can contribute and still receive tax relief may be reduced depending on the options you choose. This is called the Money Purchase Annual Allowance (MPAA).
There is also a lifetime allowance. If your pot is worth more than the lifetime allowance you will pay additional tax depending on how the pot is paid to you.
These 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.
More in this section
Go&Retire - Retirement information >
If you're less than 10 years from retiring we've got some useful information, tools and activities so you can firm up your plan and go and have a colourful retirement.
Picture your retirement >
It's time to start firming up what your retirement is going to look like and what lifestyle you can afford. We've got some hints, tips and tools to help you.
Take stock of your money >
You'll need to take stock of your retirement finances to work out when you could retire and the lifestyle you'll have. Complete some activities to create your retirement budget.
Your retirement plan >
It's time to start firming up your plan, looking forward to how the next phase will work for you. In this short guide we'll help you break it down into the key phases.
Releasing equity from your home >
There may come a time when you need extra income to top up your pension or spend on something you need. Your home could be that source of income when you need it most.
Later life planning >
As you get older your needs may change. Thinking about this in advance could help make your later years just as colourful as the decades that came before.