Your options for accessing your pension

13 October 2023

5 minutes

At a glance

• There are many options when it comes to how you access your retirement savings.
• Your financial needs in retirement can change but you can have a combination of options to offer the flexibility you need.
• Discuss your options with a financial adviser to help you put in place what’s right for you.

There’s more choice and flexibility than ever before when it comes to accessing your retirement savings. You’re more in control, but deciding which option is best for you can be overwhelming.

What are my options in retirement?

There’s a lot to consider when choosing the options available to you for accessing your retirement benefits from pensions.

Here we cover some of these options available to you. They are mostly based on a Defined Contribution (DC) pension although some consideration is given to those with Defined Benefit (DB) pensions.

As your financial needs in retirement are likely to change over time, there’s nothing to stop you having a combination of these options, perhaps over a period of time, to offer the flexibility you need. It’s best to discuss your options with a financial adviser to help you put in place what’s right for you.

Can I withdraw money from my pension pot?

Yes, but you must have reached a certain minimum pension age to access your pension pot – this is usually 55 years (set to rise to 57 in 2028¹). You may be able to withdraw your pension earlier if you’re disabled or seriously unwell, but the rules depend on your pension scheme.

You can withdraw money in several ways:

1. Drawdown is a way of taking money directly from your pension with no limits on withdrawals, subject to the value of your pension pot. You can choose to move all, or some, of your pension into ‘Drawdown’ once you have reached 55 (57 from 2028). You can then use the money you withdraw however you wish. The first 25% you take is tax free; after that, it’s liable to Income Tax at your marginal rate.

2. Partial or total withdrawal allows you to withdraw lump sums directly from your unaccessed DC pension. This is known as Uncrystallised Funds Pension Lump Sum (UFPLS) and works differently to drawdown. The 25% tax-free rule applies, although HMRC could apply an emergency tax to a large withdrawal, which you will have to claim back.

Beware of pension scams as you’re nearing pension age. Criminals are more likely to approach you to try and convince you to withdraw or invest. They may falsely claim you can access your pension before you’re 55. If you’re ever unsure, talk to your adviser.

Can I gain an income from a pension?

Yes. An Annuity (a product you can purchase with your pension funds) converts your pension pot into an annual pension, giving you a guaranteed income for life.

Although the popularity of annuities has declined in recent years, they should not be dismissed as an option – especially as part of a diversified approach to retirement planning.

Rates tend to be better the older you are, and it’s always worth looking for an enhanced annuity to improve your rate further.

What if I do nothing?

That’s an option – to leave your pensions as they are. Your pension investment will continue to be subject to market volatility, and there are no guarantees, but you may be able to grow your pension funds further.

This means when you are ready, your tax free cash lump sum, and pensions could be worth more. But if you’re unsure, an adviser can discuss your options with you and help you plan ahead.

Weighing up your options with an adviser

It can be overwhelming with so much choice on offer, but you don’t have to decide alone. A financial adviser can help you understand the main considerations when assessing your retirement benefits and discuss how to work out what you will need.

They can also help you understand any tax implications and put a plan in place that’s bespoke to you.

What works for someone else may not be the right thing for you. Speak to an adviser who can help find the best option to suit your needs and achieve the best outcome for you and your family.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

`Income drawdown' will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value. The level of income you take will need to be reviewed if the fund becomes too small - this is more likely the higher the level of income you take.

The income you receive may be lower than the amount you could receive from an annuity, depending on the performance of your investments.

As annuity rates can change substantially and rapidly, there is no guarantee that when you do purchase an annuity the rates will be favourable. This could mean that your pension thereafter may be less than you hoped for.

The rules governing how much income you can take directly from your pension fund may change. This could mean that the income you can take from the investment no longer meets your requirements.

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