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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.

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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.

You can find out more about planning for the different phases of your retirement in our Go&Retire section.

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.

Read our example 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 example 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 example 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 example 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 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.

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