• I want to make the most of my pension

  • Your pension income options

    There are many ways to take your pension. We take a look at the main options below to help you decide which is the most suitable for you.

  • Calculator-greyBefore you consider which option is right for you it’s important to know where you currently stand. Things like your pension’s value, what funds you’re invested in and your selected retirement date are essential to help you plan. You can get all of this from our free online services.


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  • Your main options

    This option allows you to take a regular taxable income from your pension while the rest remains invested. You’ll also usually be able to get up to 25% of the pension value as a tax free lump sum.

    Who’s it for?

    Since 2015, this option has been opened to most people and may be suitable if you want to take money from your pension pot while looking for continued returns on your investments. It could also be suitable if you're phasing your retirement by reducing your working hours.

    There's a real possibility that if you take out too much from your pension, that you could run out of money and not be able to sustain an income in retirement.

    We've put together a few examples that demonstrate how contributing more to your pension and managing your investments can impact on the pension income you receive.

    Sustaining your pension income

    How can I find out more?

    We’ve produced a handy guide that gives you the lowdown on Income drawdown, as well as the other options open to you.

    Pension benefits guide

    This option allows you to take your pension (or parts of it) as a lump sum. It’s worth noting however, that usually only the first 25% you receive is tax free and the rest will be taxed. The taxable amount will be added to any other income you have received over the tax year, eg money from work, savings and benefits so you could find yourself paying more tax than you’d normally expect to.

    Who’s it for?

    Anyone can take their pension savings as a lump sum. A recent report found that since April 2015, over half of pension savings that have been accessed have been fully withdrawn using this option. 90% of the pension savings accessed were smaller than £30,000 suggesting tax planning plays its part in people’s thinking to avoid them moving into a higher tax bracket.

    We've put together a few examples to show you how much tax you might pay if you chose to take 25% of your pension pot as tax free cash and the rest as a taxable lump sum.

    Take a look at the tax implications

    How can I find out more?

    We’ve produced a handy guide that provides more information about taking your pension as a lump sum, as well as the other options open to you.

    Pension benefits guide

    This option converts your pension savings into an annuity that provides you with a guaranteed income for the rest of your life. You can usually take up to 25% of your pension savings as a tax free lump sum prior to converting to an annuity. Any income from the annuity is taxable.

    The amount you receive from an annuity varies greatly between providers and what options you choose with it, and that’s why it’s important to shop around for the best product.

    Example – This example assumes a healthy 65 year old male (Jake) opts to take his £50,000 pension savings using the annuity option. He chooses to take his 25% tax free lump sum (£12,500) and uses the rest – £37,500 to convert to an annuity.

    Options Income
     

    Option A – Jake decides not to protect his spouse in the event he dies before her (no spouse’s pension).

    He opts out of his income increasing in line with inflation.

    He decides against having a guaranteed period that ensures the income will be paid for a set period regardless of whether he dies in it.

    Because Jake decides to take a basic annuity without any additional benefits he gets the maximum from it: £1,943 each year for the rest of his life.*

    *Price quoted 11 September 2017 (Just Retirement) https://comparison.moneyadviceservice.org.uk/en/Annuity/Quotes 

    Option B –  Jake decides to protect his spouse in the event he dies before her. He opts to give her 50% of what he would receive.

    He opts out of his income increasing in line with inflation.

    He decides against having a guaranteed period that ensures the income will be paid for a set period regardless of whether he dies in it.


    Because Jake has included spouse’s pension without any additional benefits he gets a reduced income: £1,829 each year for the rest of his life. *

    His wife will however receive an income of £914.5 each year once Jake dies, in the event she outlives Jake.

    *Price quoted 11 September 2017 (Just Retirement) https://comparison.moneyadviceservice.org.uk/en/Annuity/Quotes


    Enhanced/Impaired annuities

    Now let’s assume that Jake isn’t healthy, and smokes regularly, has high blood pressure and cholesterol. Certain providers will pay extra as your outlook isn’t necessarily as positive as a healthy individual.

    Option A above
     

    Because Jake decides to take a basic annuity without any additional benefits he gets the maximum from it: £2,196 each year for the rest of his life.*

    *Price quoted 11 September 2017 (Canada Life) https://comparison.moneyadviceservice.org.uk/en/Annuity/Quotes
    Option B above

    Because Jake has included spouse’s pension without any additional benefits he gets a reduced income: £1,940 each year for the rest of his life. *

    His wife will however receive an income of £970 each year once Jake dies, in the event she outlives Jake.

    *Price quoted 11 September 2017 (Just Retirement) https://comparison.moneyadviceservice.org.uk/en/Annuity/Quotes


    How can I find out more?

    For more details on annuities, visit our annuities page.



  • How much tax might you pay?

     The pension options
    What's usually tax free?
    What's taxed?
    Income drawdown

    If you want to take cash out in chunks then 25% of each amount you take out is tax free  

      75% of each amount you take out

        Taking your pension as a cash lump sum
        25% of your whole pot
        75% of your whole pot 
        Annuity
        25% of your pot before you buy an annuity
        Income from the annuity 


        It's also possible to take Income drawdown as an adjustable income (known as drip-feed drawdown). For more details on this option, including its tax treatment view our pension benefits guide.

      • Struggling to work out what’s best?

        Use our simple decision tree to help you consider what option might be the most suitable for you and your circumstances.

        • Income drawdown
        • Taking your pension as a cash lump sum
        • Annuity

         Click on the image to open and enlarge the decision tree.

      • What if my pension isn't worth much?

        You may be able to take the whole of your pension as a small pot if you're at least 55, or retiring earlier due to ill health, and the value of the pension in question does not exceed £10,000.

        You do not have to take into account any other pension benefits you have when taking a pension as a small pot. The government will allow you to take up to three pension arrangements under the small pots rule.

        Call us on 0345 129 9993 if this option appeals to you.

      • Topping up

        If you're not going to get the income that you want from your pension, don't worry. There could still be time to increase the value of your pension savings by topping up or increasing the contributions you make to it. If you'd like to top up then visit our 'Topping up' page for all the information you'll need.

        Getting advice and guidance

        It's extremely valuable to discuss your options with a financial adviser, and, or Pension Wise (a free government impartial guidance service).  To understand the benefits of seeing a financial adviser as well as help finding one local to you, visit our 'Getting advice' page.