If you’re approaching retirement, it’s important to start thinking how you’ll use your pension to provide you with an income.


It used to be the case that the vast majority of people bought an annuity with their pension at retirement, but pension freedoms introduced in 2015 mean that there are now several other options available.

Here, we explain what they are. Remember, these options only apply to defined contribution or money purchase pension schemes. If you’ve got a defined benefit or final salary pension, you’ll receive a guaranteed income in retirement, based on the number of years you paid into the scheme and your salary.

Flexi-access drawdown

With flexi-access drawdown, you re-invest your pension into funds designed to provide you with an income from them as and when you need it. You can pass on your pension to your loved ones when you die.

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Buying an annuity

You can use some or all of your pension to buy an annuity, or income for life. The amount of income you’ll get depends on your age, health and whether you want a level income or for it to increase over time. As a general rule, income from your annuity will finish when you die, although some may continue to pay an income to a dependant.

Taking cash sums from your pension

You can leave your pension to grow and take cash from it when you need to but check with your provider whether there will be charges when you make a withdrawal, or if there is only a certain number of withdrawals you can make each year.

Seek professional financial advice if you’re not sure which is likely to be the best option for you.

Three points to consider

  • Remember the tax rules

The first 25% of your pension can be taken as a tax-free lump sum, and after that any withdrawals are taxed at your income tax rate. Be careful about taking too much income from your pension at once, as this could push you into a higher tax bracket, potentially landing you with a hefty tax bill.

  • Check your state pension age

Make sure you know when you’ll start receiving the State Pension so that you can be certain you’ll have enough income to live off before this. One in four people aged between 50 and 64 years, equivalent to nearly 3m people, are currently unaware what their State Pension age (SPA) is, according to new research by YouGov for the Charity Age UK. You can find out your state retirement age from the Pensions Advisory Service.

  • Track down any lost pensions

Lots of us have ‘missing’ pensions, perhaps because we’ve joined lots of different schemes over the years which we’ve lost track of, or because we’ve moved home and forgotten to notify our pension providers. Finding these could boost your income at retirement You can also find contact details for workplace and personal pension schemes through the Government’s free Pension Tracing Service.