Options for accessing your pension

Taking Pension Benefits


What you can do with your pension pot?

The earliest age upon which you can take benefits is age 55. The minimum age is expected to increase to 57 in 2028 with further increases as the State Pension Age goes up.

When you choose to access your pension, you have the option to take up to 25% of the fund as a pension commencement lump sum (tax-free amount). The remaining funds will usually be taxed as income at your marginal rate(s) of income tax. You can take up to a quarter of your pension pot as a tax-free lump sum. You have a number of options for how to access the money in your pension pot:

  • Taking all or some of it as cash – you can withdraw your money as one or more lump sums.
  • Income for life (sometimes known as an ‘annuity’) – a product that gives you a guaranteed income for life.
  • Flexi-access drawdown – investing it to get a regular, adjustable income.

It’s important to understand the different tax rules for each option.


Hierarchy of needs

Cash Flow Planning for Retirement

It’s no secret that retirement can be expensive, especially due to rising inflation. In addition to the obvious costs, like housing and healthcare, many other expenses can quickly add up.

It’s so important to create a retirement budget. By understanding where your money is going, you can identify potential areas of improvement.

Once you have a clear picture of your cash flow, you can start making adjustments to ensure you can look forward to enjoying your retirement years.


There’s no obligation to take any cash out or start drawing an income at 55. You may not need the money yet, in which

case you may consider leaving your pension pot invested – especially if you’re still working. You can continue paying into your pension and making the most of the tax benefits.

If you have no earnings or earn less than £3,600 a year, you can still pay a total of £3,600 gross a year into a pension scheme and qualify to have tax relief added to contributions.

You can close your pension pot and take your fund as cash. It’s worth noting that there will be no ongoing income from your pension and it’s highly likely that there will be a large tax bill.

The first 25% will usually be tax-free. The remaining 75% will be taxed at your highest marginal tax rate – by adding it to the rest of your income. If you’re withdrawing a significant amount or still earning at the same time you could also be pushed up a tax bracket.

Normally, the first 25% lump sum you withdraw will be tax-free. You’ll need to do your research to decide what’s best to do with the remainder.

If you don’t need as much as 25% of your total fund, you could take out some cash tax-free – giving what’s left more time to potentially benefit from investment growth.

Alternatively, you could take out more than 25% as a lump sum, but you’ll need to pay tax on it.

In addition to providing a tax-free lump sum of 25% of the pension value, you could consider using your pension to provide an income.

A traditional annuity gives you the security of knowing how much you’ll receive each year for the rest of your life.

Alternatively, a ‘flexible income drawdown’ lets you take an income when needed but allows you to keep the rest invested.

As with any investment, there’s a risk you could get back less than you started with.

What next?

If you’re a member of a workplace pension scheme, you generally require the consent of the employer or ex-employer to take benefits early (from age 55 but before the scheme’s normal retirement age). In some instances, you may also need the consent of the pension scheme trustees.

If you have a private pension, you don’t need the consent of an employer or the pension provider to take benefits early, if the terms and conditions of your contract allow you to do this.

Need some more guidance?

Whether you are considering one of the above or a mix of the options, it’s always a good idea to speak to a financial adviser before making any big decisions. You can also visit PensionWise – a free, impartial guidance service offered by the government to help you understand your retirement options.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).  The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislations and regulation which are subject to change. You should seek advice to understand your options at retirement.

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