Flexible income

Take an income from your pension savings as you need it. The rest stays invested and can be passed on to your family when you die

From age 55, you can choose to take a flexible income from your pension.

You can dip in and make a cash withdrawal anytime you like. While your money stays invested, giving your pot the potential to keep on growing.

You can also pass your pot on to your loved ones when you die, inheritance tax free.

You can choose to buy an annuity at any time to guarantee an income for life.

What do I need to think about?

There’s always the chance of your investments performing poorly and the value of your pot significantly falling.

Normally, only the first 25% of your withdrawals are tax-free, the rest is taxed as income.

Remember, you must make sure your money lasts as long as you need it to.

Take a look at our Why choose a flexible income? guide to find out more.

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Is flexible income right for me?

It could be if:

  • You’re comfortable taking some investment risk
  • You’re prepared to regularly review and actively manage your income and investments

Your pot stays invested so you’ll have to be comfortable taking the risk that if investments don’t perform well enough they might not be able to sustain the amount of income you need.

If you’re unsure about taking on these risks then flexible income (drawdown) may not be the best option for you. You could consider a guaranteed income (annuity) instead.

Flexible income lets you:

  • Take an income – and change this anytime you want
  • Dip in to your pension savings and take a cash withdrawal anytime you like
  • Keep your pension pot invested, giving it the potential to grow
  • Change your mind and buy a guaranteed income (annuity) for life, anytime
  • Pass on what’s left in your pot to your loved ones, normally free of inheritance tax, when you die
    • If you die before age 75, this will normally be completely income tax free.
    • If you die age 75 or over, your beneficiaries will be able to access the pension flexibly, at any age, subject to tax.

You can access your pension savings anytime from the age of 55 (57 from 2028).

 

Shop around

Remember that you don't have to take flexible income (drawdown) from your current pension provider. It's important that you shop around to find the best deal for you. Your pension provider may not offer the option you want or other providers may be able to offer you a better deal. So it's worth comparing what each provider can offer. Find out more about shopping around.

 

What option is right for you?

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What are the pros and cons?

 

Pros

Cons

Potential for your pension to grow
The invested part of your pension will have the opportunity to grow. You could benefit from future stock market growth free from UK income and capital gains tax.
No guarantees
You could run out of money if your investments perform poorly, you withdraw too much or you live longer than expected. Remember your income stops when your money runs out so you need to consider the longer-term impact of making withdrawals from your pot because you could run out of money before you die. As your plan continues to be invested the charges will be ongoing.
Flexibility
You can keep your options open and take an income as and when you need it.
Payments into any pension could be restricted
Going over your tax-free cash limit (when you start accessing taxable income) restricts the payments you or an employer can make to any of your money purchase pensions to £4,000 a year. This can be a problem if you’re still earning and either have other savings you want to pay into a pension or if you intend to make significant payments into any of your pensions.
Pass on your wealth
You can pass on what’s left in your pot to your loved ones, usually free of inheritance tax, when you die.
You’ll need to be hands-on
You’ll need to regularly review your investments and may need financial advice.
Investment choice
You’ll be in control.
State benefits could be affected
Your entitlement to means-tested state benefits, if applicable, may be affected if you take cash or income from your pension – check this isn’t going to be a problem before going ahead. For more information visit the Money Advice Service website

 

What else can I do?

Let’s look at some examples of how flexible income can create financial freedom in your retirement:

  • Do more in early retirement
    Take more of your money at the start of your retirement and do the things you enjoy. As you get older you might find you need to spend less.

    As we’re all aware, your circumstances can change at any time. With flexible income you can adapt your income to meet your changing situation.
  • Retire early or go part- time
    If you have pensions elsewhere you could retire early or go part-time by taking a flexible income from your pot, before your main pension starts.
  • Change to a guaranteed income (annuity) anytime
    For example, you could start with a flexible income (drawdown). Then later on, for example age 77, you could buy an annuity, giving you a guaranteed income for the rest of your life.
  • Balance of peace of mind and flexibility
    You could use some of your pension savings to secure a guaranteed income to cover the essentials such as bills and living costs then use the flexible income to cover life’s extras.

    Taking a flexible income and guaranteed income could offer a good balance of peace of mind and the flexibility to adapt to life’s changes.

 

Tax rules and legislation can change and your tax treatment will depend on your personal circumstances. Any information given is based on our understanding of law and current HM Revenue & Customs practice, as at April 2018.

The information and examples provided here should not be regarded as financial advice. If you are unsure you should speak to a financial adviser. There’s likely to be a cost for this.

Compare retirement options:

 

Guaranteed income
(annuity)

Flexible income
(drawdown)

Leave it to grow

Take cash

Will I get a guaranteed income for life?

 

 

 

 

Can my money potentially grow?

 

 

 

 

Can I access my money if I need to?

 

 

 

 

Access to impartial guidance

We recommend you seek appropriate guidance or advice before you make any decisions. An adviser may charge a fee for this. You can also get free impartial guidance over the phone or face to face with Pensionwise. Go to pensionwise.gov.uk or call 0800 138 3944.
Make sure you understand all your retirement options by reading the Money Advice Service guide – Your pension - it’s time to choose

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