Thinking about accessing your pension from age 55?

How do you decide?

Before we get into the different ways to take money out, there's some more general things to think about first. Try asking yourself the following questions :

  • bullet How long will you need your money to last?
  • bullet What will your living costs be in the future?
  • bullet How long do you want to keep working?
  • bullet How much tax might you pay?
  • bullet Could your health and lifestyle affect what you get?
  • bullet How much do you want to leave behind?

How to access your money?

From age 55, there are three main ways you can take your money: Take your tax-free money first, take a combination of tax-free and taxable money or take a guaranteed income for life. You could also take a combination of these three, or simply do nothing at all.

Each of the main options usually allow you to take up to 25% of your pot tax-free. You might also need to pay tax on the remaining 75% of your pension pot, depending on your circumstances and the options you choose. Tax rules can also change in the future.

The ways to access your tax-free money, and the remainder of your pension pot, are very different on each of the options though.

This information is intended to guide you through your options as there’s lots to consider. It can be quite a complex area, so we’d always recommend you get financial advice.

Tax-free money first and taxable money when you need it (also known as "drawdown")

A pension pot is usually made up of a 25% tax-free amount and 75% taxable amount.

With this option you can take some or all of your tax-free cash first, and then take some or all of your taxable amount as and when you need it.

This means you could choose to take out your 25% tax-free cash and the other 75% stays invested for you. This gives it a chance to grow, but it could go down in value too.

You can take money out this way as single amounts and/or a regular income. The taxable money is taxed like a salary.

With this option any money left in your pot can usually go to your loved one when you die.

Take a combination of tax-free and taxable money at the same time (also known as “take some or all your pension as cash”)

With this option when you take some, or all of your money, it must be taken as a combination of tax-free and taxable money at the same time.

This means each time you take money out, 25% of the amount you take will be tax-free and the other 75% will be taxed like a salary.

Any money left in your pension pot is invested for you giving it the chance to grow, but it could go down in value too.

You can take money out this way as single amounts and/or a regular income.

With this option any money left in your pot can usually go to your loved one when you die.

Get a guaranteed income for life (also known as an "annuity")

A pension pot is usually made up of a 25% tax-free amount and 75% taxable amount.

With this option, you can take tax-free cash (usually 25% of your pot), and the remainder is used to give you guaranteed regular income for the rest of your life. This income is taxed like a salary.

With this option you can usually choose to leave a regular income to your loved one, you can't normally leave a lump sum.

Important information

  • If you don’t have any income coming in from anywhere else, you’ll need to make sure the money lasts all the way through your retirement, so you don’t run out.
  • If inflation goes up, your money might not stretch as far as it does today.
  • The amount you take out could be subject to Emergency Tax. You will have to claim back or pay any difference in tax to HMRC.
  • Depending on how you take your money, you could lose all or some of your means tested state benefits or have to repay debt. You should speak to the relevant agency before making any decision.
  • When deciding what to do with your pension pot you should be aware that different providers offer different products that may be more suited to your individual circumstances. Each product option could also have different tax implications. Their rates, investment funds, charges and terms may also be different. 
  • For example, with a Guaranteed income for life, they might use different criteria to assess you or your partner’s health and/or lifestyle conditions, this is often called an enhanced annuity. This might mean that you could get a higher level of income elsewhere. This is why it’s important to shop around - so that whatever you decide to do, it’s the right decision for you.

What to do with your pension is a big decision, so we would always recommend you seek financial advice. We’d also recommend that you visit PensionWise - a free, impartial guidance service offered by the government to help you understand your retirement options.

Protecting yourself from pension scams

According to Action Fraud, the UK’s fraud and internet crime reporting centre, an estimated £1.2bn is lost to investment scams every year. So if you’re thinking of reinvesting the money from your plan, take a minute to find out how you can protect yourself and stay ahead of the scammers. There is also some very useful information available from The Pensions Regulator.

Calculators and tools to help you plan

Pension pot calculator

Our calculator will help you understand how the options could impact your retirement income. You can use it to understand what your pension pots can provide. It will also show you the buying power of your money by taking into account the effects of inflation.

Please read all of our assumptions to understand how we’ve worked out the amounts. 

The results are not a recommendation and not financial advice.

Retirement Income Planner

This planner shows you how taking different amounts of money from your pot can impact how long your money might last. You can input different amounts and see the impact it has.

Income tax calculator

This calculator will provide an estimate of how much Income Tax you may pay, depending on how much money you take from your pension. You can input different amounts in the box that asks for your gross salary and see roughly how much tax you might have to pay.

Emergency Tax Tool

This tool is to show you how much Emergency Tax you might have to pay on withdrawals from your pension pot.

Where can I learn more?

Call us on 0345 640 2000
9am-5pm, Monday to Friday

Our dedicated teams are here to help answer questions you might have when you are ready to retire.


 

We recommend you use Pension Wise, a free impartial guidance service from the government to help you understand your options at retirement.

Visit pensionwise.gov.uk or call 0300 330 1001 to book a phone or face-to-face appointment.

Visit the www.hmrc.gov.uk to get information on tax rules and legislation which may affect you if you have a pension plan or looking to access your options.