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Your options
There are lots of ways to take your pension during retirement. Each has pros and cons.
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What do you want from your pension?
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Guaranteed options
Using your pension to buy an annuity or fixed term income.
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A mixed option
A fix and flex approach – using some of your pot to buy a guaranteed income and drawing the rest when you need.
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A flexible option
A drawdown income – use your pension flexibly, setting up a regular income or taking lump sums when you need them.
Tax free cash and lump sums
You can normally take up to 25% of your pension tax free.
You can take tax free cash with any retirement option – but you don’t have to, and there are some things to consider.
You can even take your whole pension in one go. You may have to pay more tax if you do this.
Tax rules and legislation may change in the future. Tax treatment depends on your individual circumstances including where you live in the UK.
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Retirement stories
What could retirement look like? These stories show different ways you could use your pension during retirement. They are examples – not real people.
Why Sasha chose an annuity
Sasha is 67 and ready to retire. She has a few different pots currently valued at £381,000 in total.
Sasha values security – she worries about running out of money later in life. She has no mortgage or dependants.
She decides to combine her pensions to buy an annuity (guaranteed income for life) with her entire pot. This gives her an income of £19,755 a year. She chooses an option that rises with inflation each year.
She also gets the full State Pension of £11,973 a year. This means she’s guaranteed £31,728 a year (before tax) for the rest of her life – enough for a moderate lifestyle based on the Retirement Living Standards.
Sasha won’t run out of money during retirement. However, she can’t change her income or take a lump sum. When she dies, her annuity payments will stop, unless she chose an option that allowed for some of her money to be passed on - for example a dependant's income, if she did have dependants.
Why Bryan chose flexible drawdown
Bryan is 61. His pension is valued at around £650,000, and he’s planning to stop work in 5 years.
Bryan has a £100,000 mortgage which he’s planning to pay off with some of his tax free cash.
He wants to use the rest of his money flexibly by setting up a flexible drawdown income, which he can increase or decrease to suit his needs. He plans to use tailored drawdown, mixing taxable and tax free income to minimise the tax he pays. Any money left over will be passed on to his family when he dies.
Assuming Bryan is entitled to the full State Pension, he will recieve an annual income of £41,004 (before tax) at age 66, increasing to £52,977 (before tax) from age 67, up to the age of 89 – enough for a comfortable lifestyle based on the Retirement Living Standards. However, he could have more or less depending on investment growth, so he’ll have to manage his spending and investment choices to avoid running out.
Why Kelly chose fix and flex
Kelly is 45. Her pension is currently valued at £120,000.
She recently increased her pension contribution to 10% of her £52,000 salary (15% including her employer contribution). Based on medium growth assumptions, this will give her a pot of £447,000 when she reaches her State Pension age of 67.
Kelly has already looked into her retirement options, and wants to fix and flex – buying a guaranteed income (annuity) to cover her essentials, then dipping into the rest of her pension when she needs to.
This will give her some security, because she’ll never run out of money. Her pension pot will remain invested, which means she could benefit from long-term growth, though this isn’t guaranteed.
She won’t be able to pass on the guaranteed part of her income unless she chooses an option that allows this from the start, which may lower her income. She will be able to pass on the rest of her pot.
Why David took his pension in one go
David is 56. He has one pension pot currently values at £110,000.
David doesn’t have a mortgage. He earns rental income from two properties he owns – currently about £2,500 a month.
David decides to take this pot in one go so he can take his family on a round-the-word trip.
25% of this pot is tax free, but 75% is taxable. Because he takes his pension in a single tax year alongside other earnings, David pays a large amount of tax.
David will rely on rental income for his retirement – or he’ll sell his rented properties. Without this money, he would fall short of minimum lifestyle according to the Retirement Living Standards, even if he gets the full State Pension, which he won't be eligible for until age 67. David should seek financial advice before making his decision, as he won't be able to undo this.
Why Holly chose to work for longer
Holly is 58. She didn’t work for many years, but now earns £62,000 a year, and pays the minimum 5% contribution into her workplace pension. This pot is currently valued at £58,000.
Holly puts these numbers into an online pension calculator, and realises she’ll need to delay retirement to afford the lifestyle she wants.
For this reason, Holly decides she will carry on working until age 70. She increases her pension contributions to 20% of her salary. She also moves a £50,000 inheritance from an ISA into her pension, using annual allowance carry-forward, to benefit from tax relief and avoid any lump sum tax penalty.
Depending on investment growth, these actions could boost her pot to around £332,000 by age 70 – enough for a moderate lifestyle according to the Retirement Living Standards.
Why Jules chose to get financial advice
Jules is 64. She has several pension pots from previous jobs. The biggest is currently valued at £60,000, and the total is around £240,000.
She also has a rainy day fund of around £30,000 in a cash ISA.
Jules has lots of questions about retirement. Is bringing these pots together risky? What if there’s a dip in the market before she retires? Should she use the money in her ISA first, or withdraw tax free cash from her pensions? And is there any way to ring-fence some money for her children?
Jules wants to be confident that she’s making the right decision. She decides to get financial advice. This has an upfront cost, but means she has a plan that takes her individual needs and circumstances into account.
Result: A guaranteed income for life (annuity) might suit you
Based on your answers, you value security and certainty.
An annuity gives you a guaranteed income for the rest of your life, so you don’t have to worry about market ups and downs or managing investments. You can choose options like an income that increase with inflation, or an income or lump sum for your dependants.
You can buy a guaranteed income when you retire, or later on, with some or all of your pot. Once you’ve bought a guaranteed income, you can’t change your mind or make any changes.
Other options
You should also consider a fix and flex (mixed) income. This means you buy a smaller guaranteed income to cover the basics, then use the rest of your money flexibly.
Note: This result is based on your quiz answers and isn’t financial advice. What’s right for you will depend on your full financial situation.
Explore guaranteed income (annuity)
Financial advice: a tailored plan for your retirement
A financial adviser will take into account your personal circumstances. Together, you can build a plan that gives you confidence about your retirement.
Result: A flexible income (pension drawdown) might suit you
Based on your answers, you value flexibility and choice.
With a flexible income (drawdown) you can set up a regular income, dip into your pot when you need it, or both. The rest of the money in your pension pot stays invested.
This gives you more control, but also more responsibility. As your pension remains invested its value can go down as well as up, and you could run out of money if you spend too much.
Other options
You should also consider a fix and flex (mixed) income. This means you buy a smaller guaranteed income to cover the basics, then use the rest of your money flexibly.
You can also buy a guaranteed income for life (annuity) with some or all of your pot later on.
Note: This result is based on your quiz answers and isn’t financial advice. What’s right for you will depend on your full financial situation.
Explore flexible income (drawdown)
Financial advice: a tailored plan for your retirement
A financial adviser will take into account your personal circumstances. Together, you can build a plan that gives you confidence about your retirement.
Result: A ‘fix and flex’ (mixed) income might suit you
Based on your answers, you value both security and flexibility.
A fix and flex (mixed) income means buying a guaranteed income (annuity) with some of your pension pot, and using the rest flexibly when you need it (drawdown).
This gives you some of the benefits of both options. You’ll never have less than your guaranteed income amount, but you have the option of spending more or less depending on your needs.
However, some of your money is still invested, so the value can go down as well as up, and you can’t change your mind about your guaranteed income later.
Note: This result is based on your quiz answers and isn’t financial advice. What’s right for you will depend on your full financial situation.
Financial advice: a tailored plan for your retirement
A financial adviser will take into account your personal circumstances. Together, you can build a plan that gives you confidence about your retirement.
Result: A ‘fix and flex’ (mixed) income might suit you
Based on your answers, you value both security and flexibility.
A fixed and flex (mixed) income means buying a guaranteed income (annuity) with some of your pot, and using the rest flexibly when you need it (drawdown).
This gives you some of the benefits of both options. You’ll never have less than your guaranteed income amount, but you have the option of spending more or less depending on your needs.
However, some of your money is still invested, so the value can go up and down, and you can’t change your mind about you guaranteed income later.
Note: This result is based on your quiz answers and isn’t financial advice. What’s right for you will depend on your full financial situation.
Financial advice: a tailored plan for your retirement
A financial adviser will take into account your personal circumstances. Together, you can build a plan that gives you confidence about your retirement.
