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Your options at retirement

Your retirement options

A simple breakdown of the three main options for income, from the UK's number 1 retirement service.*

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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?

Secure income

Income security:

A secure income is paid for the rest of your life, income will never run out.
  • Normally up to 25% of the fund used to buy an annuity can be taken as tax-free cash at the outset.
  • Regular income payments will be made directly into your bank account for life - you don’t need to do a thing once it's set up.
  • You can shop around at the start to find a better lifelong income, and could use your, and potentially your spouse's or partner's, health conditions and lifestyle to boost income further.
  • At the start, you can make provision for a spouse or partner if you die first, and/or include an annuity that keeps pace with inflation.
  • Income is inflexible: the guaranteed nature means it can't usually be changed once set up.
  • It can't take account of changing circumstances, and if you've chosen a fixed income this has no protection from inflation.

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Mix and match

Income security:

Use a blend of secure and variable income. You decide how to mix and match your income.
  • Normally up to 25% of the fund can be taken tax free, either straight away or in stages.
  • Most people will want some kind of secure income to cover basic costs and bills. Some will also want a flexible income to supplement this.
  • Shopping around allows you to compare the services, benefits, rates and charges of different providers. This is important when deciding which options to choose.
  • You can choose a blend of secure and variable income that is right for you but which could also provide flexible benefits for your dependents.
  • Only some of your income is secure, the remaining income is not guaranteed and could run out.
  • It is very important to make sure you understand your options and check they are suitable for your circumstances before applying.

Use a blend of secure and variable income

Mix and match

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Flexible income
(Drawdown and UFPLS)

Income security:

A variable income allows you to draw money directly from your pension.
  • Normally up to 25% of the fund used for drawdown can be taken as tax-free cash at outset. For UFPLS, 25% of each lump sum will be tax free.
  • Income is not limited and can be taken as and when required.
  • You remain in control and choose where to invest. This may be an advantage for some, but could be a worry for others. You should request an illustration to see how your fund value could be affected before you apply.
  • You keep options open. There are various ways in which to pass on your pension when you die, tax free in some cases.
  • Income is not secure. This is a high risk option which requires regular monitoring and review.
  • You could run out of money if you take too much out, you get the investment choices wrong, or you live longer than expected.

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UFPLS factsheet

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More about drawdown

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  • Secure income

    Mix and match

    Flexible income
    (Drawdown or UFPLS)

    Why might I consider this option?

    If you need or want some form of secure income.

    This is one of the few ways of providing a guaranteed income for life. However once set up, this option cannot usually be changed.

    If you want secure income to cover your essential costs and flexibility with the rest.

    The flexible part of your income could fall as your fund remains invested and is therefore subject to the ups and downs of the market. The secure part can't usually be changed.

    Drawdown could be considered if you don't need or want a secure income yet, you would like to take all (or a large proportion) of your tax-free cash now, or you would like to vary the income you take.

    An UFPLS could be considered if you don't need or want a secure or regular income yet and want to take the tax free part of your fund in stages.

    Your options remain open but income could fall as your fund remains invested and is therefore subject to the ups and downs of the market.

    What happens to the pension fund?

    You convert it into secure income, for life.

    You convert some into a secure income for life. The rest remains invested and you can draw any additional income you want directly from your fund.

    Any funds not used will remain invested.

    The drawdown fund stays invested. You can then take a taxable income as and when you want to from these funds. There is no minimum or maximum withdrawal limit.

    When taking an UFPLS, you will be paid your lump sum in one go. 75% of the payment will be taxable. If you have reached 75 and used up your lifetime allowance the taxable amount could be more than 75%. Any funds not used will remain invested.

    Do I have to use my entire pension fund?

    No - the amount you use will depend on how much secure income you want.

    No - you do not need to use your pension all in one go, you can stage the process. The amount you use will depend on the income you want and your individual circumstances.

    No. You can move funds into drawdown in stages (known as partial or phased drawdown).

    You can take lump sums (UFPLS withdrawals) as and when you require income.

    Is income secure?

    Yes - income is guaranteed.

    Partly – the income from the annuity is guaranteed, while the amount invested to provide a flexible income is not.

    No - the amount available will depend on your investment choice, growth and generated income. Ongoing charges will also have an impact.

    Do you retain control over the pension? Do you need to review regularly?

    No - income will be paid for your lifetime with no further action required from you.

    You retain control over the flexible part. You do not retain control over the secure part.

    The flexible part requires ongoing reviews, while the secure part does not need to be reviewed.

    Yes - you retain control over your remaining investments and income levels. This is your responsibility and will require regular monitoring.

    What happens to the pension when you die?

    There is nothing payable, unless you have chosen a spouse's pension, guarantee period or value protection option at outset. If you have chosen one or more of these options and you die before age 75 this can usually be paid out tax free.

    The remaining pension can be used to provide an annuity or drawdown for your dependent or nominated beneficiaries, or the fund can be paid out as a lump sum. If you die before the age of 75 the fund can usually be paid out tax free. If you die after the age of 75 then this will be subject to income tax. Please remember tax rules may change in the future.

    Download our factsheet for more information

    Do you need to decide on the death benefits now?

    Yes - once set up the annuity features cannot normally be changed.

    Yes for the secure part. No for the flexible part - you can keep your options open.

    No - you keep your options open. You can nominate beneficiaries and amend these at any time

    What are the downsides?

    Can be inflexible: the secure income cannot usually be amended so it is important to consider your options carefully. Annuity rates can change regularly and may go up and down in future, but once set up your annuity is fixed for life.

    This option has the same downsides as the secure and flexible income downsides shown to the left and right.

    Drawing your pension via drawdown or via an UFPLS is a more complex and higher risk option than an annuity. Income is not secure and excessive withdrawals or poor investment performance will deplete your fund, reducing your income later in life.

    If you choose to take your tax free portion in stages, and your fund value decreases over time, the overall tax free amount you receive could be less than if you had purchased an annuity, chosen full drawdown or taken the whole fund as an UFPLS at outset.

    Find out how to take a secure income for life with an annuity

    More about annuities

    Find out how to take a blend of secure and flexible income with our Retirement Planner

    More about mix and match

    Find out how to draw directly from your pension with drawdown and UFPLS

    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

*We are the UK's largest drawdown provider for clients making their own investment decisions (Money Management survey). We are the UK's largest annuity broker and have been for 13 years running (Equifax Touchstone).