Your retirement options
As you approach retirement, it’s helpful to understand what your options are.
Understanding what you can do with pensions
You may already have some knowledge of which option suits you. But it's worth comparing the features and benefits of each for added peace of mind.
Once you’ve understood and compared them, use our retirement calculators to help you plan more.
There are three options that you can consider for your defined contribution pension. Each option allows you to take it from age 55 and get up to 25% tax-free although from 6th April 2028, you will need to be 57 to take money from your pension. After you have taken your tax-free cash, the remaining amount is subject to income tax. You can also choose to defer taking your pension just now.
Option 1 - A guaranteed income for life - an annuity
By choosing an annuity you could be paid a set amount every month for the rest of your life, so you'll know exactly how much you're getting and when. There are a number of different types but they all pay a guaranteed monthly, quarterly or annual sum until you die.
Option 2 - Flexible access to your pension
You can take your pension savings as and when you like, taking as much money as you want.
With flexible access to your pension, you could:
- take your money in lump sums as and when you need it
- leave the rest invested so it can potentially grow
- pass on the money left when you die to family or loved ones
- run out of money if you don't budget properly
- reduce the maximum amount you can save into pensions.
You can take 25% of your pension as a tax-free single lump sum. You can then leave the rest of your money invested, but have flexible access to it and take money as and when you need it. This could be a regular income or as lump sums. These options will not provide you with a guaranteed income for life.
Option 3 - Take your pension in cash
You can take your entire pension in cash from age 55, although from 6th April 2028, you will need to be 57. The first 25% will be tax free. The remaining 75% will be taxed at your highest marginal tax rate - by adding it to the rest of your income.
Remember you will not have an ongoing income from your pension if you do this.
If you want flexibility, you can take money from your pension as a number of lump sums - 25% of each lump sum is tax free and the other 75% is taxed as income. By only taking as much money as you need, when you need it, the rest of your pension is left invested and can potentially continue to grow.
Option 4 - Defer your pension for later
You may not need the money yet, in which case you may consider leaving your pension pot invested.
It'll give you the time to think about your pension options and you can plan how best to use it to provide for your future.
You don’t have to use just one option. You can combine these options in many different ways to meet your own needs.