Income choices in retirement

What can you do with your pension, how can you secure an income – do you have choices over what you can do now, or later? 

What are my financial options when I retire?

Much depends on when you're actually retiring; when you're going to stop paying into your workplace or private pension, and when you want to start using the money that you've saved. The regulations have changed from April 2015, the pension reforms that have been introduced now mean you have complete freedom and choice on how you use your Defined Contribution pension savings.

April 2015 pension changes

As of April 2015, there are hardly any constraints on what you can do with the pension savings you've accrued in any Defined Contribution schemes you've saved into during your working life.

After you've decided if you'd like to take any tax-free cash from your pension pot, your main options are:

  • buying a guaranteed income for life
  • using drawdown or flexi-access drawdown
  • taking lump sums out in 'chunks'
  • taking out all of the money you've saved as cash
  • creating a solution for yourself that combines some of those options
  • leave your pot untouched

Buying a guaranteed income for life

Quite simply, an annuity will provide you with a guaranteed income for life. This means that your pension scheme provider will give an insurance company of your choice your pension savings (minus any tax free cash you want to utilise), and they'll pay you an income every year for the rest of your life – guaranteed. Why not find out more about annuities.

Using income drawdown

With an income drawdown arrangement, you leave your pension savings invested, but take an income from them as required. From April 2015, the restrictions on how much income you can take have been lifted on all new drawdown plans. Why not find out more about income drawdown

Taking a lump sum

"Uncrystallised funds" are essentially savings that you have in any pension scheme, which you haven't drawn on yet. You are able to take 25% of these funds as a tax-free lump sum before you decide what to do with the rest and from April 2015, if you have a Defined Contribution scheme you can take the remainder of your pension savings as a lump sum, but it will be subject to tax. Depending on your circumstances the tax payable may be significant, so it's worth examining this option carefully. Why not find out more about taking lump sums.

More choice sounds great, but are there any catches?

There are no catches as such, but with more choice, comes greater responsibility for managing your money. Before you take a one off lump sum, there are some important things to think about – questions to ask yourself:

  • Will I pay lots of tax? The decisions you make will have tax implications for your retirement income.
  • Where will my income come from? If you decide not to buy a guaranteed income for life, you will have to find a way to manage your money so that it lasts you for life.
  • What kind of income do I want? Would you like that income to increase each year to offset inflation? Do you need flexibility to vary your income?
  • Am I happy taking investment risk? What will you do with the money?
  • When I die, what would I like to happen to my money? The treatment of your money on death differs depending on the decisions you take.
  • Will I trigger the Money Purchase Annual Allowance? This is something to consider if you're accessing your pension flexibly. 

What else do I need to know?

There are two things that are very important to remember, no matter what you decide to do or which options you're researching right now:

You should seek professional financial advice. It may cost you money to have an in-depth review with a professional adviser (unless you have access to financial advice through your company, it's always worth asking what's available); but an adviser will help you understand what your options are – and what the implications are – in depth.

If you don’t have an adviser, you can find one by visiting  Alternatively, you can contact Pension Wise – a free and impartial government service that helps you understand your new pension options. Please note in 2020/21 Pension Wise will be brought under The Money and Pensions Service (MaPS).

Additionally, HUB Financial Solutions, part of the Just Group, offers an annuity comparison service that could help you make sense of your options. Visit the HUB Financial Solutions website.

  • Conversely, do remember that no one will force you to take 'the first option' you receive from your pension provider. You are entitled to and we do encourage you to look around, research what's available from other companies, and find the best deal for your long term financial future – one you're comfortable with, and confident that it will provide you the income you'd like, for the rest of your life.

When do I need to make a decision?

You can currently access your pension savings from 55. But you may decide that this is too early to make any big decisions about what you’d like to do with the money you’ve saved – everyone is different. Some people may have their retirement fully mapped out from 50. For others the trigger will come when they receive communications that their pension provider. Referred to as ‘wake-up packs’, these detailed bundles of information contain information about how much your pension is worth and what other options are available when it comes to securing an income.

To find out more, why not take a look at our wake-up pack jargon buster?