Turning your pension into income
From 55 (rising to 57) you can access your pension and choose how to take an income. The best approach balances flexibility, security and tax — and many people combine methods. Drawdown keeps you invested with flexible withdrawals, but your pot can run down, so a sustainable strategy matters.
1. Flexi-access drawdown
Keep your pension invested and draw income as needed, with 25% normally tax-free. Best for those wanting flexibility and potential growth, who can accept investment risk and manage withdrawals sustainably.
2. Annuity (guaranteed income)
Exchange your pot for a guaranteed income for life. Best for those who value certainty over flexibility — rates improve with age and health. Often used for essential spending you want guaranteed.
3. Mixing drawdown and an annuity
Use an annuity to cover essential bills and drawdown for flexible extras. Best for many retirees — security for the essentials, flexibility for the rest. A popular, balanced approach.
4. UFPLS (lump sums)
Take ad-hoc lump sums, each 25% tax-free and 75% taxable. Best for those wanting occasional withdrawals rather than a regular income — useful for specific one-off needs.
5. Phased and tax-efficient withdrawal
Drawing income in a tax-efficient way (using allowances, avoiding higher tax bands) preserves more of your pot. Best for those planning withdrawals carefully — small changes in how you draw can save significant tax.
Key risks to manage
- Running out — drawing too much too soon can exhaust the pot
- Investment risk — markets can fall while you're drawing
- Tax — large withdrawals can push you into higher bands
- Inflation — income needs to keep pace over a long retirement
How to find the best drawdown approach
Retirement income is complex and irreversible in places, so advice adds real value. A qualified adviser can build a sustainable, tax-efficient plan. Find a pension adviser through Nesto — free, no obligation.
Frequently asked questions
What's the difference between drawdown and an annuity?
Drawdown keeps you invested with flexible withdrawals (and risk); an annuity gives a guaranteed income for life (less flexibility). Many people combine both.
How much can I take tax-free?
Normally 25% of your pension is tax-free, taken as a lump sum or spread across withdrawals; the rest is taxed as income.
Can I run out of money in drawdown?
Yes — that's the main risk. Withdrawing too much, or poor market returns, can exhaust the pot, so a sustainable rate matters.
When can I access my pension?
From age 55, rising to 57 in 2028. Earlier access is rare and usually a scam warning sign.
Should I get advice on drawdown?
Strongly recommended — it's complex, partly irreversible, and tax planning can make a big difference. Free guidance is also available via Pension Wise.