Flexible income at a glance

The facts Advantages Disadvantages
You can take up to 25% as a tax-free lump sum. You can take this at any point from age 55. Any cash you take reduces the amount of income you could receive.
The rest of your money stays invested, and you can take withdrawals at any time. Flexibility of taking money when you need it and making further contributions if you wish. All income is taxed the same as any earnings you have. You should ensure you understand what tax rates might apply to you.
You need to consider how long you will need an income for, as you could live 20 years or more in retirement. If you invest your money carefully and regularly review how any income is reducing your pension pot, you can ensure that your money lasts as long as possible. You could run out of money if you take too much income from your pension pot.
You need to decide which funds your pension pot is invested in as the performance of any funds will affect how long any income will last. You can choose where to invest your pension to meet your needs. Your pension pot could go down dramatically if you don’t regularly monitor how your funds are performing.

Things to consider

Keeping your income sustainable

People are living longer and choosing to spend their retirement in many different ways. So if you’re thinking about flexible income, consider the factors that will affect how long your pension lasts:

  • the amount you have in your pension and other investments at retirement
  • the amount you take out of your pension
  • the way you invest your money

You can aim to provide an income, to grow the capital in your pension, or for a combination of the two.

One of the big decisions about flexible income is how you produce it.

Three options for producing flexible retirement income

Natural income only

You can take the dividends paid to the fund, instead of cashing in units or shares. There’s more chance of your money lasting, but you won’t know exactly how much you’ll get from month to month.

Capital withdrawals only

You can put your money into investments that aim to deliver capital growth, instead of income, then withdraw the growth amount as income.

Capital withdrawals plus natural income

You can make withdrawals that include the natural income from your investments plus some of your pension pot to get the income you need.

Whichever method you use to take an income, it’s important you plan carefully so you don’t run out of money. You need to think about the different types of fund choices that will support the way you draw down your pension.

Changing your flexible retirement income arrangements

The advantage of flexible retirement income is that you can manage your money as your needs change over time. You can change the funds you’ve invested in, how much and how often you choose to withdraw, and even change your provider.

Making income withdrawals
Taking regular income payments

Transferring your flexible income

When you’re withdrawing money by taking flexible retirement income you’re still free to move your pension to a new provider and, if you’re planning to take an income for a decade or two, it can really be worth it.

A lower-cost pension could save you money in the long run. It might also open up more investment options – or simply allow you to move to a company that better meets your changing needs. Before transferring, we strongly recommend taking appropriate financial advice.

It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, take a look at our section on moving your pension. If you’re in any doubt whether or not a pension transfer is suitable for your circumstances we strongly suggest that you seek advice from an authorised financial adviser.

Our retirement service team can explain what retirement income options are available within your existing pension plan and which are not. They can also refer you to our team of retirement specialists who can provide information on alternative options like retirement advice. Call us on 0800 3 68 68 73, Monday to Friday, 8am to 6pm.

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