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Show me the money – what to do with your pension at retirement.

Show me the money – what to do with your pension at retirement.

Today, you’ve got many options and permutations available when it comes to what to do with your pension in retirement. However, lots of choice can also mean increased confusion.

Your retirement might seem like a far-off prospect, but knowing how you can access your pension pot can help you understand how best to build for the future you want.

You must have reached a certain minimum pension age set by your pension fund provider to access your pension pot – usually 55 years if you have a defined contribution pension – at which point you have the choice of how to take your pension. In some instances, you may be able to withdraw your pension earlier if you’re retiring because of poor health or disability, but the rules depend on your pension scheme.

When you take your pension, some will be tax-free, but the rest is taxed. Please be aware that tax depends on your circumstances, and the tax rules can also change in the future. Whatever approach you take, each option has its own upsides, downsides and tax implications. It depends on what you want out of life, how you choose to live and how much you want to leave behind.

With all of the options, you can normally take up to 25% of your pension pot as a tax-free lump sum if you wish to do so. The rest is then taxed as income at the point you receive it. We can make sure that you fully understand the tax implications of each option available to you so that you are fully informed.


How long your pension pot lasts will depend on the choices you make. You’ll be able to access the money within your pension pot in several different ways. We’ve provided some of the options to help you think your pension strategy through. You don’t have to stick to just one option, as you could combine several. Some products may not offer the full range of options. We’re not recommending one over the other, but we can support you when the time comes to make your decision.


You can use your pension pot to buy an income for life. It pays you an income and is guaranteed for life. These payments may be subject to Income Tax. In most cases, you can take up to 25% of the money you move into your guaranteed income for life, in cash, tax-free. You’ll need to do this at the start, and you need to take the rest as an income.


In most cases, you can take out up to 25% of the money moved into your flexible cash or income plan, in cash, tax-free. You can either move your total fund into drawdown and take all your tax-free lump sum at the start, or you can move portions of your fund into drawdown at different times and take 25% of each portion as tax-free cash over time. You can then make future withdrawals from the drawdown pot as and when you like.

You can also set up a regular income with this option. Any money you take after the first 25% may be subject to Income Tax. You can invest the rest in whichever fund or funds you choose, giving your money the chance to grow. Although as with all investments, it could go down in value too, and you could get back less than you put in.


You can do this all in one go, or as a series of smaller lump sums, while the rest remains in your pension fund. Once you receive your money after tax, you’re completely responsible for it and can use it as you want. If you do opt for smaller lump sums without taking your tax-free cash up front, then each payment will be 25% tax-free. The remainder will be added to your income for the year and taxed accordingly, which may result in you paying a higher rate of tax.


You don’t have to choose one option – you can take a combination of some or all of them over time, even if you’ve only got one pension pot. Before combining any options, though, take time to think about the benefits and considerations of each option on its own. We’ll check with your providers to see that you’re not losing out on any guarantees on your plan by combining options.


If you don’t need to take any money out, you can leave it in your pension pot to give you more time to decide what to do with it, or give your pot a chance to keep growing – but while it’s invested, it could go down as well as up in value, and you might get back less than you put in. And if you’re still paying into your plan, you can keep paying into it and potentially benefit from tax relief. You can then choose how to access your money when the time is right for you.


When deciding what to do with your pension pot, it’s important to remember that each option might have different tax implications, and that pension providers offer different products with alternative options or features including the product terms, rates, funds or charges that might be more appropriate for your individual needs and circumstances.

If you’re like most people, the money in your pension pot will need to last for the rest of your life. Once you’ve decided, you might not be able to change your mind. So, it’s important to get all the information you need to feel confident that you’re making the right decision for you.

A pension is a long-term investment. The fund may fluctuate and can go up and down, which would have an impact on the level of pension benefits available. Accessing pension benefits early may impact levels of retirement income and your entitlement to certain means-tested benefits. You should seek advice to understand your options at retirement. Pensions are not normally accessible until aged 55. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future. The value of investments and income from them may go down. You may not get back the original amount you invested. Past performance is not a reliable indicator of future performance.

Contact our wealth management experts today

For more information please contact  Kellie Lewis, Client Relationship Manager, on 01895 544001 or kellie@ibbwealth.co.uk or Graeme Cowie, Director, on 01895 544001 or graeme@ibbwealth.co.uk. Alternatively please visit www.ibbwealth.co.uk.