Your pension income 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

Where can I invest my pension when I'm in drawdown?

If you're looking to access your pension savings through drawdown, you'll need to decide which investment funds you'd like your remaining money invested in. This is an important decision so you'll need to ensure that the funds you choose meet your continuing retirement objectives. There are a number of options you may wish to consider. You can:

• Invest using Investment Pathways - you can use investment pathways by transferring to another pension plan with the Phoenix group or with another provider. For more information, take a look at our 'Understanding Investment Pathways' guide.
• Change your investments - we offer a range of funds to invest in, each with its own investment objective. We have fund lists here in our literature library and factsheets in our Fund Information Centre.
• Stay invested as you are - if you don't want to change your investments, you should still review your current investments to make sure they meet your retirement objectives.
  

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 Financial Conduct Authority (FCA) report found that from the introduction of the pension freedoms in April 2015 to September 2017, over half* of pension savings that were accessed were fully withdrawn using this option. 88% 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

* of the total number of pots accessed for the first time since October 2015.

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.

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.

How can I find out more?

For more details on annuities, visit our annuities page.