Choosing a taxable income for the rest of your life
You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into a taxable income for life called an ‘annuity’. There are different lifetime annuity options and features to choose from that affect how much income you would get. You can also choose to provide an income for life for a dependent or other beneficiary after you die.
Re-investing funds designed to provide you with a regular taxable income
With this flexible retirement income option known as ‘flexi-access drawdown’, you can normally take up to 25% (a quarter) of your pension pot or of the amount you allocate for drawdown as a tax-free lump sum, then re-invest the rest into funds designed to provide you with a regular taxable income. You set the income you want, though this might be adjusted periodically depending on the performance of your investments. Unlike with a lifetime annuity, your income isn’t guaranteed for life – so you need to manage your investments carefully.
Taking money from your pension as and when you need it
You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free. For each cash withdrawal, normally the first 25% (quarter) is tax-free, and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.
Without very careful planning, you could run out of money and have nothing to live on
You could close your pension pot and take the entire amount as cash in one go if you wish. Normally, the first 25% (quarter) will be tax-free, and the rest will be taxed at your highest tax rate by adding it to the rest of your income. Once you’ve taken all the money, your pension will close and you won’t be able to make any further payments into it.
Balance of flexibility and security to suit your circumstances
If you are looking for a balance of flexibility and security to suit your circumstances, you could consider blending your retirement options. You don’t have to choose one option when deciding how to access your pension pot – you could set up a combination of options to suit you.
