Approaching retirement?

What will you be able to do with your money? These are your main options. But remember, if you have a salary-related pension (defined benefits / final salary) scheme these are not automatically accessible to you in the same way.

Flexible retirement income (pension drawdown)

You can leave your money in your pension pot and take an income from it.

You can take up to 25% as a tax-free lump sum straight away or in stages.

Take withdrawals whenever you like, but income after the first 25% will be taxed as earnings.

The rest of your money stays invested.

You can choose how much to take and how often.

If you take too much, or your investments underperform, you may not have enough left to live on in retirement.

You can leave any funds you don’t withdraw to your family, beneficiaries or charities. If you die after you’re 75, your beneficiaries may have to pay tax on the money.

Taking lump sums (UFPLS)

You can leave your money in your pension pot and take lump sums from it as and when you need.

25% of each lump sum will be tax free, 75% will be taxed as earnings – so you could move up a tax band.

Take out as much as you want straight away and use it for whatever you want, but you’ll have to pay tax as above.

The rest of your money stays invested.

You can choose how much to take and how often.

If you take too much, or your investments underperform, you may not have enough left to live on in retirement.

You can leave any funds you don’t withdraw to your family, beneficiaries or charities. If you die after you’re 75, your beneficiaries may have to pay tax on the money.

Guaranteed income for life (annuity)

You can move your pension to an insurance company who will provide you with a lifelong, regular income. This income will be taxed as earnings.

You can take up to 25% as a tax-free lump sum before you set up your annuity.

Once your annuity is set up the insurance company will provide you with an agreed income which will be taxed as earnings.

There are many types of annuities and features you can select, such as inflation protection and a spouse’s pension.

With low interest rates, you may not get much income for your money.

Provides you with a guaranteed income that will last as long as you live.

You may be able to pass something on, depending on how you set up your annuity. If you die after you’re 75, your beneficiaries may have to pay tax on the money.

Leave it where it is

You can delay taking money from your pension pot to allow you to consider your options.

As with your other options you can take up to 25% as a tax-free lump sum.

Delaying taking your money may give your pension pot a chance to grow, but it could go down in value too.

The rest of your money stays invested.

You can choose if, when and how you want to take an income later.

If your investments perform well, you may be able to withdraw a higher income later as you may not need it to last as long.

You can leave any funds you don’t withdraw to your family, beneficiaries or charities. If you die after you’re 75, your beneficiaries may have to pay tax on the money.

If you have a pension worth less than £10,000 you can take it as a small pot lump sum.

If your pension pot exceeds £1 million you may have to pay a tax charge.

More about lifetime allowance

Choose more than one option or mix them
You can also choose to take your pension using a combination of some or all of these options over time or over your total pot. If you have more than one pot, you can use the different options for each pot. Some pension providers can offer you an option that combines a guaranteed income for life with a flexible income.

Some useful tools

The value of investments can go down as well as up, so you may get back less than you invest. Tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future.

This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please refer to an authorised financial adviser.

Pension money cannot normally be withdrawn until age 55.

Our retirement specialists can offer you guidance or personalised advice on your income options in retirement and help you to find the most appropriate solution for your personal circumstances. Our flat-rate advice fee is one of the lowest among leading providers. Call us on 0800 3 68 68 73 Monday to Friday, 9am to 5pm.

Find out more about Fidelity’s retirement service

Shopping around

It is important that you shop around to find the best deal for you, as you would with any other purchase. Your pension provider may not offer the option you want or other providers may be able to offer you a better deal, so it is worth comparing what each provider can offer. The Pension Wise website provides more information on shopping around: https://www.pensionwise.gov.uk/shop-around.