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