How can I take my pension savings?

It might seem like a far off prospect but knowing how you can access your pension pot can help you understand how best to build for the future you want.

The key thing to know is that from the age of 55, if you have a defined contribution pension, you have the freedom to choose how you take your pension.

There are several ways you can take your pension.

There are several ways you can take your pension.

Lots of choice can often mean increased confusion, so here’s an at-a-glance view of your options. We’re not recommending one over the other, but we can support you when the time comes to make your decision.

(For a more in-depth view of each of the options, with examples and numbers, you can also explore our Approaching retirement section.)

When considering how you’ll take your pension, think ahead about how much you might need to live on in retirement - and how you’ll make your money last.

With all of the options, you can normally take up to 25% of your pension pot as a tax-free lump sum if you wish to do so. The rest will be taxed as an income as and when you receive it, so look at the tax implications of each option carefully.

So what are your options?

1. Get a secure, regular income for life with an annuity
If you want to use your pension to provide a guaranteed regular income for life, you can buy an annuity with your fund.

There are different types of annuity to choose from, with income options to suit your needs, perhaps those of your partner when you die - or maybe an increased income if you or your partner have certain health conditions. Check out these annuity tips before you buy.

2. Get a flexible income with a flexi-access drawdown plan

Drawdown lets you dip into your pot as you need. You simply take flexible cash amounts from your pension pot, while the rest stays invested.

But like any investment, the value could go down as well as up and you may not get back what you put in. Any money you have left in the fund can be passed on when you die.

3. Take your money as cash

You can do this all in one go, or as a series of smaller lump sums, whilst the rest remains in your pension fund.
If you opt for smaller lump sums without taking your tax-free cash up front then each payment will be 25% tax-free. The remainder will be added to your income for the year and taxed accordingly.

This may result in you paying a higher rate of tax.

4. A combination of options

It may be possible to mix and match what you do with your pension pot at different points in your retirement.
Before combining any options though, take time to think about the benefits and considerations of each option on its own. Check with your providers to see that you’re not losing out on any guarantees on your plan by combining options.

5. Leave it where it is

If you don’t need the money just yet, you could leave it invested for now. As long as your money stays in your pension pot you won’t pay tax on it and you’ll get tax-relief on contributions you make into your plan.

There’s no guarantee you’ll get more when you take your money out, as your fund value can go down as well as up while it remains invested, and so you may not get back what you put in.

You should check with your provider to find out about charges and penalties.

Some other things to think about

We recommend you use Pension Wise, a free impartial guidance service from the government to help you understand your options at retirement.  You can find out more on their website or by calling 0800 280 8880 to book a telephone or face-to-face appointment.

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 an annuity 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 you 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.

If you are a member of an occupational pension scheme, the options available to you may vary, so please contact your scheme administrator. We always strongly recommend that you take financial advice. If you have a pension with guaranteed benefits of £30,000 or more and are looking to convert it to a flexible option such as taking the whole pension as cash or a flexible income, you may be required by legislation to show us evidence that you’ve taken advice before we can progress your request.

In addition, if you want to transfer out of a defined benefit scheme you are also required to take financial advice.

How to set-up a financial review meeting

How to set-up a financial review meeting

We believe that getting financial advice is vitally important. So, if you don’t already have an adviser, set up a face-to-face meeting with a Prudential Financial Planning adviser in your area. We can review your retirement plans and help make your finances more tax efficient. We offer a restricted advice service.

Find out about our face-to-face service