Taking Your Pension

Since 2015 when the new pension freedoms started you can access your pension pot at any time after the age of 55. You can take your money either as a lump sum or as regular income. Normally 25% of your pension pot is tax-free and you pay tax on the other 75% when payments are taken.

In practice, most people convert their pension pots into cash or income by taking a cash lump sum, purchasing an annuity or investing in drawdown. It is not a black or white choice because you can have any combination of options. If you decide an annuity or drawdown is the best option you do not have to arrange this with your existing pension company and we can shop around to get you the best deal in the market.

Cash Lump Sums

You can take all of your pension pot as a cash sum or just part of it. Before you decide to take cash from your pension pot it is really important to work out how much tax you will pay. Tax – Normally 25% of your pension pot is paid tax free and the balance is taxed at your marginal rate. Basically, this means that if taking cash tips you into the higher rate tax band you will be paying 40% or more tax on at least some of your money. This can be a complex matter so if in doubt taking professional advice is always a good idea. You can take your entire pension pot as a cash lump sum or you can take part of your pension as a cash sum. We can advise you on the most tax-efficient option.


An annuity will pay you a guaranteed income for the rest of your life. In simple terms, you are converting your pension pot into regular income payments, normally monthly, which will continue until you die no matter how long you live. There are many different options including payments to your spouse or partner if you die before them. You can also inflation proof your annuity payments. If you smoke or have a medical condition you might qualify for a higher income known as an enhanced annuity. The plus side of an annuity is that you don’t have to worry about anything because each month you will get money paid into your bank account. On the negative side, there is no flexibility if your circumstances change in the future.

Pension drawdown

This is where you take regular income withdrawals directly from your pension fund and you retain full control over your pension pot. With drawdown you have income flexibility and you can take as much or little income as you need each year. You also have control of investments so you or your adviser can decide where your pension is invested. Finally, you have a choice of death benefits so you can decide what happens to your pension pot after your death.