Step 2 - Options for using your pension pot

Flexi-Access Drawdown is a way of taking money as and when you need it. You can usually take up to 25% cash tax-free from your pension pot and leave the rest invested, giving you the flexibility to choose how and when you withdraw the rest of the money.

If you're comfortable keeping some of your pension pot invested and believe that you can manage your pension pot to make sure you have enough money in retirement, pension drawdown could be a good choice for you.

You need to review your pot regularly so you know how much income you can take and make it last as long as possible.

A reduced annual allowance will apply once you start to take an income from your pension (but won't apply if you're just taking tax-free cash). To find out more about the Annual Allowance, please read our guide Taking Money from My Pension guide PDF size: 767KB.

If you die before you reach age 75, your remaining pot can normally be paid free of income tax regardless of whether it’s taken as a lump sum or regular income, but would be subject to your allowances. 

If you die age 75 or over, your remaining pot will be taxed at the receiving beneficiary’s marginal tax rate.

Possible benefits

• Up to 25% of your pension pot can normally be taken tax-free.
• You can take money out (drawdown) when it suits you.
• Money left in your pot can be passed on to your beneficiaries.
• Leaving your money invested gives it more chance to grow.
• You can keep paying into your pot, although a reduced annual allowance may apply.

Things for you to consider

• Income above your personal allowance is taxable. It may also affect any means-tested benefits you might receive. The amount of tax you pay on income from the plan will depend on your circumstances, and may change in the future.
• The more money you take out, the quicker your pot will run out.
• The value of your investment will go up and down. It isn’t guaranteed, so you may get back less than you put in.

Pension Drawdown Calculator

Looking to understand how much you could get if you put your pension pot into income drawdown? Our simple calculator can help

Use our calculator

A pension annuity pays you a regular guaranteed income for the rest of your life, no matter how long you live.

When you retire, one of the most important decisions you'll need to make is how to secure enough income. With a pension annuity, you'll know exactly how much you're getting, come rain or shine.

If you're not comfortable with taking a risk with your money, an annuity could be a good choice for you as it will provide a guaranteed income for the rest of your life.

You have the option of selecting death benefits which ensure your income continues to be paid to your beneficiary in the event of your death.

There are different types of annuities for example, you can choose to have a fixed or increasing income and you could get a higher income if you have certain medical conditions.

Making decisions about how to finance your retirement is important, so it’s worth shopping around and using available guidance and / or advice services before you apply.

Possible benefits

• Up to 25% of your pension pot can normally be taken tax-free (subject to your allowances).
• When buying an annuity you can select additional options at a cost which will allow income to be paid after you die such as a chosen percentage continued to be paid to a Spouse, Registered Civil Partner, Financially Dependent Partner, or protecting the amount purchased to buy the annuity.
• You can buy an annuity that increases each year that will help offset some of the effects of inflation on your income and spending power over time.
• If you have certain health or lifestyle conditions you may qualify for an enhanced annuity which could pay you a higher income.

Things for you to consider

• Income above your personal allowance is taxable. It may also affect any means-tested benefits you might receive. The amount of tax you pay on income from the plan will depend on your circumstances, and may change in the future.
• Once you have bought the annuity you can’t change your selected options, even if your circumstances change.
• You can decide when your annuity is set up if you want to continue having your payments paid to a loved one after you die.
• You can no longer pay into your pension pot, if you have used the whole amount to purchase an annuity.
• You may get back less than you paid. Depending on how long you live and the options you choose, you may receive less in income payments than the amount of your lump sum.

A fixed-term product pays you a regular guaranteed income for a set period. You can choose the level of income you receive and your preferred term. You will have the option of a lump sum at the end of the specified period, which you choose before the plan starts. You can also choose to receive no income during the specified period with just a lump sum at the end.

If you would like the security of a guaranteed income for a set period of time (e.g., until another source of income starts) or want to give yourself options later in life, this may be for you.

A reduced annual allowance will apply as soon as you take an income. For more information on this please read our Taking Money from my Pension guide PDF size: 767KB.

Possible benefits

• Up to 25% of your pension pot can normally be taken tax-free (subject to your allowances).
• You can set the plan length, the regular income amount and any lump sum maturity value.
• You can usually choose for a beneficiary to receive any remaining income payments and any maturity value if you die during the plan.
• At maturity, you can reassess your retirement needs and use any remaining lump sum to buy or invest in another retirement income product.

Things for you to consider

• Income above your personal allowance is taxable. It may also affect any means-tested benefits you might receive. The amount of tax you pay on income from the plan will depend on your circumstances, and may change in the future.
• The more money you choose as a fixed income, the quicker your pot will run out.
• If you or your partner has a health or lifestyle risk, a Pension Annuity, or products that take your health into account, may offer a higher income.
• You won't be able to change the amount you get, but if your circumstances change you may be able to cash it in or transfer it to another pension product.
• Once the plan ends you won't have this regular income any more. It’s important to consider if you will have another source of income to replace it.

You can take some or all of your pension pot as cash. Usually, up to 25% of each lump sum can be taken tax-free while the rest will be subject to income tax.

Possible benefits

• You can take all your money and use it in a way that’s right for you.

Things for you to consider

• You may pay a higher rate of tax if you take out large amounts.
• Emptying your pension pot now could mean that you don’t have enough money in later life.

If you're interested in taking all of your pot as cash, you can obtain a quotation by completing the form included in your Maturity Pack.

There’s no need to access your pension pot until you want to. You can continue to save into your pension and decide what to do at a time that suits you. Your pension pot remains invested which means the value can go up or down.

Please do let your pension provider know if you choose to delay your retirement date.

Changing your retirement date may affect how your pension pot is invested and so you should review your investment strategy if you are considering delaying your retirement.

If you die before you reach age 75, your remaining pot can normally be paid free of income tax regardless of whether it’s taken as a lump sum or regular income, but would be subject to your allowances  If you die age 75 or over, your remaining pot will be taxed at the receiving beneficiary’s marginal tax rate.

Possible benefits

• Leaving your money invested gives it more chance to grow.
• You can keep paying into your pension, to build up your retirement pot.
• You can make a decision when the time is right for you.

Things for you to consider

• The value of your investment will go up and down. It isn’t guaranteed, so you may get back less than you put in.

You can also select different options at different times, although you need be aware that some options are fixed and you can’t change your mind later.

We recommend that you speak to one of customer services team for more information, contact details below. You can also take advantage of the free government guidance service, Pension Wise, once you are aged 50 or over.

Pension and tax rules can change.