Taking your pension money as retirement income

If you’re approaching retirement age, you might be starting to consider how you’ll fund your post-work lifestyle comfortably. Retirement income is an important part of planning for your senior years, whether you're a seasoned professional, an entrepreneur, or a homemaker. This post goes through the basic income options open to you.

Pension pots

State pension

The State Pension is the foundation of most people's retirement income in the UK. It is a monthly payment from the government to those who paid National Insurance (NI) during their working lifetime. The current age to receive the State Pension is 66, and it is scheduled to rise to 67 between 2026 and 2028. The amount you receive is determined on your NI record, although there is a limit to how much you get per week.

Personal pension

A personal pension is a savings plan created to help you build a retirement fund. There are different types of personal pensions including defined contribution pensions, self-invested personal pensions (SIPPs), and workplace pension schemes. You may have already started a personal pension that you can access at the age of 55. Deposits into a personal pension qualify for tax relief, which means you can claim back all the tax you spent on your contributions.

Taking your income

Purchase an annuity

An annuity is a financial product that guarantees a lifetime income in return for a lump sum payment. You can easily convert your pension pot into an annuity to get a monthly income for the rest of your life. It is taxable but you can take 25% tax-free as a one-off lump sum. The amount of annuity you receive is determined by your age, health, and the size of your pension fund.

Drawdown

Drawdown is a flexible way of receiving an income from your pension. It allows you to leave your pension fund invested and draw money as and when you need it. Drawdown is appropriate for people who have a bigger pension pot and wish to continue saving while enjoying an income. You can withdraw as much or as little as you choose, and your pension pot will stay invested, so the amount you get may fluctuate depending on the success of your investments.

Mix annuity and drawdown

Opting for a combination of annuity and drawdown can provide both the security and flexibility that some people require. You can use a portion of your pension pot to buy an annuity and invest the rest in drawdown.

Lump sums

If you prefer, you may be able to take your entire pension pot in one go or as smaller sums of cash. Every time you take a lump sum from your pension, the first 25% will be tax-free and the remaining will be taxable. It’s worth considering the risks that come with drawing a lump sum instead of a steady income.

In short, there are several ways to secure a comfortable retirement, but how you take your money will depend on the pension you have and your circumstances. Not all pension providers offer every option, so it’s a good idea to check what’s currently available to you. You can always transfer your pension money to a provider that better suits your needs. Flagstone can help you manage your cash lump sum. Open an account with us today.

Use our calculator: see how much your pension is worth