Published: 01 Dec 2021 Last updated: 18 Jan 2024
Combine options to meet your needs
If you’ve got a defined contribution pension, you’ll also have the choice of blending your retirement options to fit your needs and the lifestyle you want.
Whether you’re more of a homebody that’s looking forward to a spot of gardening or you plan to spend your retirement trekking the Andes, being able to choose different ways to access your pension will give you an added layer of flexibility when you reach retirement age (currently 55 or 57 from April 2028).
Control over your pension options
You choose the combination of income and cash withdrawals
Getting the most out of your pension
Find the right balance between guaranteed income and flexible income
Tailor your plan
Choose a retirement plan that changes as your retirement needs change
Before you make any big decisions, just make sure you’re aware how every option works.
What are your options?
You’ll need a defined contribution pension to combine different retirement options. This is just a common type of pension of which the value will depend on how much has been put in and the performance of your investments.
If you’re not sure what you have, you can check with your employer or provider.
Set up a combination of options to suit you. You can usually take up to 25% of your pension money as tax-free cash, or take it all in cash – taxed normally.
Flexible income
Take money from your pension when you need it and keep the rest invested through income drawdown.
Guaranteed income for life
Use your pension to buy an annuity, which gives you a guaranteed income for the rest of your life.
How does it work?
Your retirement lifestyle is completely up to you, we’re just here to show you all of your options, so that you can enjoy a retirement that’s totally yours. Here are a few ways it could work.
- You could choose to buy a guaranteed income (called and annuity) with some of your pension money, while leaving some to provide a flexible income or cash lump sums when you need them
- Or, if you plan to ease into retirement, you may choose to take some money flexibly to start with and then later buy an annuity to provide a guaranteed income
- Don't forget, in addition, you can usually take up to 25% of your pension tax free. This can be taken all in one go or over time, depending on the options you choose
You can read more about the different pensions options here.
What you need to consider
- Your options
Firstly, you should look into each option thoroughly to check whether it’s right for you. There are lots of different providers you could choose. They’ll also each have varying fees, charges, and ways to manage funds that could be key factors in choosing the right option for you.
- Your circumstances
A lot depends on the amount in your pension and the lifestyle you want. The amount you need now and in the future might be different. It could be that you don’t need as much as expected because your outgoings decrease, or you could need more to cover unexpected costs when you’re older like medical expenses or long-term care. We’ve got plenty of advice and tools for you to work out how much you could need. You can try our pension calculator here.
- Your pension
You’ll need to understand the terms and conditions of your pension policy. If you currently have benefits or guarantees, these might disappear or be negatively affected by the options you pick. Transferring to another provider can be a helpful way to combine and manage your pensions, but you also risk losing benefits and you may put your capital at risk when you move – the value of your pension can go down as well as up. There’s also the state pension to consider, which can supplement your personal pension.
- Your investments
If you decide to keep money invested, its value could decrease as well as increase and there’s always the risk you could get back less than has been paid in. You’ll also keep paying any related fees and charges. So, make sure you’re happy with how your funds are invested because there are different levels of risk. You’ll need to pick one you’re most comfortable with. This will depend on what’s in your pension pot, and how you intend to spend it. - Your tax allowances
You’ll need to understand the tax implications, which depend on the options you want to combine and the amount of money you’d like to allocate to each. Tax treatment is based on your personal circumstances and may be subject to change in the future. If you’re unsure about anything, it’s a good idea to get financial advice.
Financial advice
If you’re thinking about combining an annuity and income drawdown to provide your retirement income, we recommend that you get professional advice.
Pension Wise
Pension Wise from MoneyHelper is a free, government-backed service offering clear, impartial and specialist guidance on your retirement options. If you’re aged 50 or over, this service is available to you.
Visit the MoneyHelper website or call 0800 138 3944 for full details of the service.
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