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Your options at retirement

Your retirement options

A simple breakdown of the three main options for income in retirement.

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Important: The information on our website is not personal advice but we can offer advice if specifically requested. What you do with your pension is an important decision, which could be irreversible. Drawdown is a more complex option than an annuity. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you are unsure. The Government's free Pension Wise service can help. It provides impartial guidance face-to-face, online or by phone - more on Pension Wise.

There may be more flexibility with your pension than you think. Normally from age 55 you have the opportunity to take up to 25% of the pension tax free, and a choice over how you draw the rest, which is taxable. Remember, tax rules change and the value of any benefits depends on individual circumstances. You don’t have to take an income from your pension, so if you don’t need it yet, you can leave it invested. Below is a simple breakdown of the main ways you can access your pension.

What are the options?

Annuity

Secure income for life

Drawdown

Flexible income (tax-free cash
at the start)

UFPLS

Flexible income (part of each withdrawal tax-free)

Why might I consider this option?

  • You need or want a secure income for life.
  • You want to take tax-free cash at the start.
  • You don't want to keep your pension invested.
  • You want to access your pension and keep it invested.
  • You want to take tax-free cash at the start.
  • You want the option of taking unlimited taxable withdrawals.
  • You want to access your pension and keep it invested.
  • You want the option of taking unlimited lump sum withdrawals, part of which are tax-free and part of which are taxable.

Briefly, what is this option?

Exchange the money in your pension for a secure income. Income is guaranteed for as long as you live.

Shop around and confirm health and lifestyle details to get more income.

Keep your pension invested with the option of taking unlimited withdrawals. Income is not secure.

You could receive an increasing income in retirement if investments perform well and your withdrawals are sustainable. However, you could run out of money if you withdraw too much, investments perform poorly or you live longer than expected.

What decisions do I need to make at the start?

How much of your pension you want to use for an annuity (you can usually take up to 25% of this amount as tax-free cash).

Which options you want to include (e.g. a guaranteed income for your spouse or partner if they outlive you).

How much of your pension you want to move into drawdown (you can usually take up to 25% of this amount as tax-free cash).

Where to invest your pension.

How much (if any) taxable income you wish to take.

How much you wish to take as a lump sum. Usually 25% of each lump sum is tax free, the rest is taxable.

Where to invest your remaining pension.

What do I need to do once it is set up?

Nothing – your income continues for as long as you live (or potentially longer, depending on what options you’ve chosen).

You need to regularly review where you are invested and whether your plans for any ongoing withdrawals are sustainable.

What must you accept if you choose this option?

Once set up your annuity cannot usually be changed or cancelled, even if your circumstances change.

Your income is not secure. It could run out. These options might not be suitable for you unless you have other income to rely on.

How much income will I receive?

This will depend on the size of your pension, what options you choose and the annuity rates on offer.

Shopping around using our service and confirming health and lifestyle details could mean you get more income for life.

You can take out as much (or as little) as you like. How sustainable your withdrawals are will depend on the size of your pension, investment performance and how much you withdraw.

What happens to my pension when I die?

It will stop unless you have chosen certain options.

If there is any money left, this can be passed on to your beneficiaries.

Do I have to use my entire pension?

No – you can choose how much you use to buy an annuity.

No – you can move funds into drawdown in stages, known as partial or phased drawdown.

No – you can take lump sums as and when you need to.

Can I mix and match?

Yes – you don’t have to choose just one option. You could select a mixture to match your needs. Find out more about mix and match.

More about annuities

More about drawdown

More about UFPLS

Pension guidance We strongly recommend that you seek guidance from the Government's free and impartial service Pension Wise. Find out more about Pension Wise