Your pension income options

Decide what works best for you

The earliest you can take your pension is usually 55 (rising to 57 from 2028).

It’s up to you when you take it. If you don’t need the money yet, you can leave it. We can help you prepare for your retirement too.

If you want to access your pension pot, there are three main ways you can do this. You can also mix and match options for taking from your pension which could help you find the right balance of security and flexibility.

Animation and illustrations play on screen that highlights the phrases used in the voiceover.

“You've been building up your retirement savings, and now might be the time when you're thinking of taking some money out. You'll probably want an income and you might want to take an initial lump sum. For example for some home improvements or to pay off some debt. But there are a number of ways you can do this, so it's worth taking the time to consider your options and see which ways will work best for you.

The earliest you can take your pension is age 55, rising to 57 from 2028. Usually you can take up to a quarter of it tax-free, with the rest taxed as income when you take it out. Here are three different ways you can take the money out of your pension.”

Annuities:

“Some bills never stop so for peace of mind you could make sure that your essential expenditure is covered with a secure income. You always have the option to convert some or all of your pension savings to an annuity, which will pay you a guaranteed income for life. At the start you can choose different options, like inflation protection or a continuing income for your partner or spouse after your death. It's important to get quotes from the whole market as different providers will offer the best rates at different times and make sure you confirm health and lifestyle details as these can boost your income.

Annuities can't be changed once set up so you need to choose what's right for you and get the best deal you can.”

Drawdown:

“With drawdown you keep your pension invested and draw an income whenever you need to. If your investments perform well and you don't take too much out you could enjoy a rising income. But the danger is you could run out of money if your investments perform poorly, you take out too much too early, or you live longer than expected. This means it's a higher risk option than an annuity so it won't be right for everyone.”

One-off lump sums:

“With annuities and drawdown you take the tax-free cash at the start, with lump sums or uncrystallised funds pension lump sums to give them their full name, UFPLS for short, it's different. 25% of each lump sum is usually tax-free, with the rest taxable, while the remainder of your pension pot stays invested. This means the risks are more like a drawdown plan and it's a higher risk option than an annuity.

There's more information about these options on our website (www.hl.co.uk/) you can also use the government's Pension Wise service for impartial guidance on these options.”

Important information - What you do with your pension is an important decision. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. Tax rules can change over time and benefits depend on individal circumstances.

The government's free and impartial Pension Wise service can help you and we can offer you advice if you'd like it. The information in this video isn't personal advice.

Compare your options

Annuity

Drawdown

Lump sums

In a nutshell

Swap money in your pension for a guaranteed income for the rest of your life.

Keep your pension invested. Take the income you want, when you want.

Keep your pension invested. Take the lump sums you want, when you want.

Tax

You can usually take up to 25% tax-free cash at the start. Your income is taxable.

You can usually take up to 25% tax-free cash at the start. Any income you withdraw is taxable.

Usually 25% of each withdrawal is tax free, and the rest is taxable.

Benefits

Your income is guaranteed for life. This is true no matter how long you live.

You can choose options so your income increases. This means your buying power could keep up with inflation.

Your income could continue after you die if you’ve chosen certain options when you get quotes and apply.

Withdraw what you want, when you want. So you keep your options open if your circumstances change.

Potentially beat inflation with returns from your investments. You could maintain your buying power as prices rise.

Pass on your money – when you die this can normally be paid as a lump sum or as income.

Withdraw what you want, when you want. So you keep your options open if your circumstances change.

Potentially beat inflation with returns from your investments. You could maintain your buying power as prices rise.

Pass on your money – when you die this can normally be paid as a lump sum or as income.

Risks

You can’t change your options if your circumstances change.

You can’t cash in your annuity.

Annuity rates might rise in the future, but you won’t benefit from this if your annuity is already being paid.

You could run out of money if you withdraw too much, your investments don’t perform as you’d hoped or you live longer than expected.

Income isn’t secure, it could fall or even stop completely.

It’s possible you’ll get back less than you originally invested, as all investments can fall as well as rise in value.

You could run out of money if you withdraw too much, your investments don’t perform as you’d hoped or you live longer than expected.

Income isn’t secure, it could fall or even stop completely.

It’s possible you’ll get back less than you originally invested, as all investments can fall as well as rise in value.

More about annuities

More about drawdown

More about lump sums

Annuity

Swap money in your pension for a guaranteed income for the rest of your life.

Tax
Benefits

Your income is guaranteed for life. This is true no matter how long you live.

You can choose options so your income increases. This means your buying power could keep up with inflation.

Your income could continue after you die if you’ve chosen certain options when you get quotes and apply.
Risks

You can’t change your options if your circumstances change.

You can’t cash in your annuity.

Annuity rates might rise in the future, but you won’t benefit from this if your annuity is already being paid.

More about annuities

Drawdown

Keep your pension invested. Take the income you want, when you want.

Tax
Benefits

Withdraw what you want, when you want. So you keep your options open if your circumstances change.

Potentially beat inflation with returns from your investments. You could maintain your buying power as prices rise.

Pass on your money – when you die this can normally be paid as a lump sum or as income.
Risks

You could run out of money if you withdraw too much, your investments don’t perform as you’d hoped or you live longer than expected.

Income isn’t secure, it could fall or even stop completely.

It’s possible you’ll get back less than you originally invested, as all investments can fall as well as rise in value.

More about drawdown

Lump sum

Keep your pension invested. Take the lump sums you want, when you want.

Tax
Benefits

Withdraw what you want, when you want. So you keep your options open if your circumstances change.

Potentially beat inflation with returns from your investments. You could maintain your buying power as prices rise.

Pass on your money – when you die this can normally be paid as a lump sum or as income.
Risks

You could run out of money if you withdraw too much, your investments don’t perform as you’d hoped or you live longer than expected.

Income isn’t secure, it could fall or even stop completely.

It’s possible you’ll get back less than you originally invested, as all investments can fall as well as rise in value.

More about lump sums

Accessing your pension with the HL SIPP

It could make sense to bring all your pension pots together. Combining old pensions into a SIPP (Self-Invested Personal Pension) makes it easier to see exactly how your investments are performing and if you’re still on track to reaching your retirement goals.

If you transfer old pensions into the HL SIPP, you can access your pension in the ways outlined above. What’s more, a wide choice of investments means that if you choose to keep your pension invested, you can do this in a way that suits you. Before transferring, please check that you won't lose any valuable guarantees or benefits, or incur excessive exit fees.

More about the HL SIPP

Guides to help you plan

Your options at retirement

Tips for choosing the right options for you

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Annuities

Providing a secure income from your pension

Download

Drawdown

Taking a flexible income from your pension

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Lump sums

Withdrawing your pension in one go, or a bit at a time

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Passing on wealth

What happens to your pension when you die

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Retirement options quiz

Test your knowledge and pick up some top tips

START QUIZ

Pension guidance

We strongly recommend that you seek guidance from Pension Wise, the government's free and impartial service.

More about pension wise

Ready to talk through your options?

Even after you’ve done your research, you’ll probably still have some questions about taking your pension.

The experts on our pensions helpdesk are ready to help.

Give us a call on 0117 980 9926 or email us.

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