How To Take Your Pension: Drawdown, Annuity Or Lump Sum
Deciding how to take your pension is one of the biggest financial decisions you will ever make – and for many of your options, once it is done it cannot be undone.
From age 55 (rising to 57 from April 2028) you can usually start taking money from a defined contribution pension. You can normally take up to 25% as a tax-free lump sum, and the rest is taxed as income when you draw it.
The hard part is what comes next. Do you take a guaranteed income for life, keep your pot invested and draw from it flexibly, or mix the two? Each route has very different consequences for your income, your tax, and what you can leave behind – and the right answer depends entirely on your circumstances.
At Pensions Advice UK, we connect you with FCA-authorised financial advisers who can talk you through your options and recommend the approach that fits your situation. We do not provide financial advice. We act solely as an introducer.
Your main options at retirement
- Annuity – exchange your pot for a guaranteed income for life. Certainty and no investment risk, but usually no flexibility once set up. Rates are at their strongest in well over a decade.
- Drawdown – keep your pot invested and take income as you need it. Flexible, and anything left can pass to your family, but your income is not guaranteed and the pot can run down.
- Tax-free lump sum – take up to 25% tax-free, in one go or in stages. How and when you take it can make a real difference to your tax over time.
- A blend – many people use an annuity to cover the essentials and keep the rest in drawdown for flexibility.
Why this decision needs care
Take too much too soon and you could face an unexpected tax bill or leave yourself short later in life. Buy the wrong annuity and you may be locked into an income that does not suit you. Draw down too quickly and the pot may not last. These are not decisions to rush, and most of them cannot be reversed.
A qualified adviser will look at your whole picture – your other income, your tax position, your health, and how long the money may need to last – before recommending how to take your pension. That personalised assessment is something we are unable to provide, which is why we introduce you to an authorised firm that can.
Submitting your enquiry is free. Any fees for advice will be explained to you directly by the authorised firm before you proceed.
NOTE: (We do not provide financial advice. We act solely as an introducer)
Common questions
Is drawdown better than an annuity?
Neither is better in the abstract – it depends on what you need. An annuity gives certainty; drawdown gives flexibility. Many people use both. An adviser can show you what each would mean for your income.
How much of my pension can I take tax-free?
Usually up to 25% of your defined contribution pot, subject to an overall limit. When and how you take it affects your tax, so it is worth planning rather than taking it all automatically.
What age can I take my pension?
Normally from age 55, rising to 57 from April 2028 for most people. Taking it earlier than you need to can have tax and longevity consequences.
Do I have to take advice before accessing my pension?
Not always, but it is strongly recommended for a decision this significant. Free, impartial guidance is also available from the government’s Pension Wise service via MoneyHelper.
Important information
Pensions Advice UK is a trading name of GAP-GNX Ltd. We are not authorised by the Financial Conduct Authority and we do not provide financial, investment, pension or tax advice. We act solely as an introducer.
The information on this page is general information only. It is not a personal recommendation and should not be relied upon when making decisions about your pension. Whether any course of action is right for you depends on your individual circumstances.When you make an enquiry, we may introduce you to an FCA-authorised financial adviser.
Any advice, recommendation or regulated service will be provided by that authorised firm, not by Pensions Advice UK. The authorised firm will explain its services and any fees to you directly before you decide to proceed. FCA-authorised firms may have their own criteria for accepting clients, over which we have no control.
The value of pensions and investments can fall as well as rise, and you may get back less than you put in.
Past performance is not a guide to future returns. Transferring or combining pensions is not right for everyone and may mean giving up valuable benefits or guarantees.Free and impartial guidance about your pension options is available from the government’s MoneyHelper service, and if you are aged 50 or over from Pension Wise, at moneyhelper.org.uk.
