Pension Options

Pension freedom: what will you do with your retirement?

April 2015 was the start of Pension Freedom – a dramatic overhaul in the way pensions can be accessed by people over the age of 55. If you’re over 55, or approaching 55, it’s time to understand your four pension options.

1. Annuity

“I want a retirement income guaranteed for life”

Annuities provide guaranteed regular retirement income and allow you to budget effectively. Annuities are the traditional option for retirement – but no longer the only choice. There are lots of different types of annuities and choosing the most appropriate one will depend on:

  • your circumstances (including if you’d like a joint annuity with your partner)
  • your health (even if you suffer from a minor ailment like asthma, you could receive higher monthly payments with an Enhanced Annuity)
  • your attitude to risk
  • whether you wish to provide any funds when you die

Most ‘traditional’ annuities don’t allow unused funds to be used as inheritance, but now annuities can be arranged with additional features.

2. Flexi-access drawdown

“I want to take my money out as and when”

With a flexi-access drawdown scheme your pension fund can remain invested in shares, bonds and so on, allowing you to draw regular income from it by cashing in some of those investments. Each time you move money into drawdown, up to 25% can be taken as a tax-free lump-sum. The remainder stays invested and taxable income can be drawn directly from the pension as you wish.

While you’ll be able to choose when and how much to take out of your pension, it will be up to you to manage your spending and ensure that you have enough income to last for the whole of your retirement. Unlike most annuities, the money that is left in drawdown when you die can be passed on.

3. Uncrystallised funds pension lump sum

“I want to withdraw lump sums”

There are lots of different ways to take money from your pension. Some pension providers allow you to keep your pension pot invested, but take out lump-sums when you need them. You can access your pension all in one go taking 25% tax-free, or take multiple lump sums with 25% of each withdrawal tax-free.

This is known as UFPLS (Uncrystallised Funds Pension Lump Sum). Taking lump sums from your pension will reduce the size of your overall fund, and potentially lessen the amount you can take in the future.

Mind that taxman…


Whichever option you choose for your retirement (or you can mix and match) it’s vital that you get independent financial advice to help you make the right decision and avoid unnecessary tax bills. There’s more information on each of your options and how to access independent financial advice in our Pensions Freedom brochure.

4. Take your pension as one lump sum

“I want to withdraw my entire pension”

You don’t have to take your pension as regular income, you can choose to withdraw it and convert it to cash. You can take up to 25% of your total fund tax-free, but the rest is taxable and could push you into a higher tax band. Always consult an independent financial adviser before accessing your pension as you could face a tax bill and lose the tax-free advantage of pension savings.


If you choose this option it will be up to you to manage your spending and ensure that you have enough income to last for the whole of your retirement.

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