What you can do with your pension pot

It's decision time! Here's a summary of the options you might consider for your retirement income:

Lump sums

Lump sums are a popular part of the pension and you can take up to 25 per cent of your pension tax free from the age of 55. You can just draw a series of lump sums from the pension without moving it – but this isn’t recommended because your current pension fund is set up for saving, not withdrawal, so won’t deliver either the value or the security you need.

Plus taking larger lump sums could see you landed with a hefty tax bill if not carefully managed. Talk to an adviser about a drawdown fund instead, where your funds are reinvested in a suitably balanced portfolio.


Annuities are currently looking poor value, with a £100,000 pension pot providing just over £5,000 a year or £4,000 if you want it to grow with inflation. But annuities are guaranteed, paying out right until the end. Women can expect to live for a further 21 years at age 64 so annuities can be an important part of your overall retirement income portfolio.

Income drawdown

This is the most flexible option and likely to give you the best income. It’s a way of using your pension pot to give you a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you will get will vary depending on the fund’s performance and isn’t guaranteed for life. You may run out of money if the markets aren’t kind or if you don’t manage it well.

Guaranteed drawdown

This is where your income is guaranteed through an insurance scheme and your money stays invested. “This is a bit more expensive to run and can be complex to understand, but it is designed to give you the best of both worlds and is becoming increasingly popular,” says Bob Stark at Portafina.

Get tailored advice

Everyone is different and advice from an independent financial adviser via unbiased.co.uk is recommended or get free guidance from the Government’s Pension Wise service (0800 138 3944).

Passing on your pension

If you die before age 75, your unused pension funds can be paid tax-free to your loved ones either as a lump sum or income. This also applies to annuities if you had bought a dependent’s annuity. If you die on or after age 75, any unused pension, or dependant’s annuity is taxed at your loved one’s income tax rate. Read more on passing on your pension pot to loved ones.