Use your pension pot to provide a flexible retirement income

You can move your money to another pension pot and take an income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too.

A quarter of your pension pot can usually be taken tax-free and any other withdrawals will be taxable whether you take them as income or as lump sums.

You will need to transfer to a different pension provider to do this.

You do not need to take a regular income.

What is this option?

This option allows you to move your pension pot to a flexible retirement product, designed to provide an income in retirement. The income normally isn’t guaranteed.

A flexible retirement product is an investment, which should be selected to match your income objectives and your attitude to risk. You can generally have a regular monthly, quarterly, yearly or irregular income – whatever suits you – and you can adjust it depending on the performance of your investment if you want to.

Once you take any money from your flexible retirement product, the tax relief you are entitled to each year on any future pension savings will be restricted to the amount of the ‘Money Purchase Annual Allowance’ (MPAA), currently £4,000 per annum, and you’ll be charged additional Income Tax on contributions in excess of this. Your future pension savings to which the limit applies, include contributions paid by you and/ or your employer into a defined contribution pension (i.e. a pension other than a scheme that pays you benefits based directly upon your salary and service). You should consider this carefully if you intend to continue saving for your retirement after you start using your pension pot to provide a flexible retirement income.

How your payments would be taxed

You can normally take 25% (one quarter) of your pension pot tax free and transfer the remainder to a flexible retirement product.

After this, the income you receive is generally taxable, in the same way that tax is paid on your income. The amount of Income Tax you pay each year depends on your total income. The pension provider that pays your income is required to deduct tax before you receive it, using your personal tax code specified by HMRC.

Safeguarded Benefits

Some pension pots contain ‘Safeguarded Benefits’, which provide a potentially valuable guarantee relating to the ‘income for life’ option. The guarantee may entitle you to receive an income for life that is higher than would normally be available. The information provided to you with this Fact Sheet will tell you if any part of your pension pot includes Safeguarded Benefits. If it does, we recommend you obtain professional advice before making a final decision that involves losing that guarantee. And if the value of the part of your pension pot that includes such a guarantee is more than £30,000, we are required to obtain confirmation from your adviser that you have received appropriate independent advice, before we may release any of that part of your pension pot as a tax free lump sum or to another provider to provide a flexible retirement income.

State benefits

Using your pension pot to provide a flexible retirement income could affect your entitlement to State benefits, now or in later life. If you are currently receiving state benefits and/or you expect to receive them in the future, you should check whether there may be a reduction in your entitlement to them if you choose to use your pension pot to provide a flexible retirement income. There is more information about how this can affect your State benefits at GOV.UK.

What happens to your pension pot when you die?

Any untouched part of your pension pot will pass to your beneficiary. If you die before age 75, this will be paid tax free (provided the money is paid within two years of the provider being notified of your death, or otherwise it will be added to the beneficiary’s other income and subject to Income Tax). If you die at or after age 75, the untouched part of your pension pot will be added to the beneficiary’s other income and subject to Income Tax.

Other things to think about

  • If you choose this option you need to be aware that the income is not normally guaranteed to last as long as you live. You’ll need to think carefully about any income you take, consider your other sources of income and what will happen to others who may be dependent on you for income when you die.
  • Your retirement income could fall, or even run out altogether, if you take too much too soon or your investment falls in value. You’ll need to consider how you’ll cope if the value of your pot drops suddenly.
  • The key to whether the product meets your needs is how the investments perform over time and you’ll need to review regularly where your money is invested.
  • Your provider will generally charge for managing your pension pot in this way, and/or whenever you require a payment, and/or for annual or ad hoc reviews. Charges can reduce the size of your investment.
  • You can move some or all of your remaining pot to buy a guaranteed income for life at any time.
  • This type of product is complicated and different providers offer products with differing features and comparing these products may be difficult. We recommend that you consult a financial adviser if considering this type of product.

Please read about Pension Scams and Pensions Advice.

Find out about your other options.

Tap the options below for an overview of available options to you.

Keep your pension savings where they are

You can delay taking money from your pension pot to allow you to consider your options. Reaching age 55 or the age you agreed with us is not a deadline to act. Delaying taking your money may give your pension pot a chance to grow, but it could go down in value too.

Your policy can be extended to a maximum age of 75. You will need to choose one of the other options by the time you reach 75.

Find out more

Use your pension pot to get a guaranteed income for life

A lifelong, regular income provides you with a guarantee that the income will last as long as you live. A quarter of your pension pot can usually be taken tax-free and your income payments will be taxable.

You use your pot to buy an insurance policy called an annuity that guarantees you an income for the rest of your life – no matter how long you live. If you want to take an income for life, you should shop around for the best deal. If you want to take an income for life with us you must do so by age 75

Find out more

Use your pension pot to provide a flexible retirement income

You can move your money to another pension pot and take an income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too.

A quarter of your pension pot can usually be taken tax-free and any other withdrawals will be taxable whether you take them as income or as lump sums.

You will need to transfer to a different pension provider to do this.

You do not need to take a regular income.

Find out more

Take your pension pot as a number of lump sums

You can move your money to another pension pot and take lump sums from it as and when you need, until your money runs out or you choose another option. You can decide when and how much to take out. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. Each time you take a lump sum, normally a quarter of it is tax-free and the rest will be taxable.

You will need to transfer to a different pension provider to do this.

Find out more

Take your pension pot in one go

You can take the whole amount as a single lump sum. A quarter of your pension pot can usually be taken tax-free – the rest will be taxable. You will need to plan how you will provide an income for the rest of your retirement.

You can choose this option for one or more policies individually.

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Mix your options

You can also choose to take your pension benefits using a combination of some or all of the options over time. If you have more than one policy, you can use a different option for each policy.

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