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From age 55, you can take up to 25% of your pension savings as tax-free cash if you want to. You can take the rest of your pension savings as a flexible income (also known as income drawdown).
What is flexible income?
Flexible income, also known as income drawdown, allows you to leave your pension savings invested as you want within your plan, taking an income from it when you need to. You can also take up to 25% of your pension savings as tax-free cash first, but you don’t have to. The maximum tax-free cash is subject to the Lump Sum Allowance of £268,275. This may be higher if you have pension protection.
Things to think about
Generally, flexible income could be a good option for you if you’re looking to take your money as and when you need it, rather than requiring a lump sum or a set, regular income.
It’s a hands-on approach to taking your pension savings, and it allows you to adjust your income in retirement as your needs change.
Any income you take from your pension savings will be taxed in the normal way, like a salary would be. So, if you take large sums from your pension savings, that could push you into a higher tax bracket than you’re used to
Here are three things to ask yourself when you’re making your decision:
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Am I comfortable managing my own income and investments in retirement?
If you choose to take your pension savings using income drawdown, you’ll need to keep managing your investments. Make sure you’re happy to do that long-term.
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Will I have enough money to last?
This can be a hard aspect of your planning to work out with confidence. Try using our calculator tool to begin with, and don’t forget that you can get some additional guidance and advice around this too.
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Do I want to keep making contributions to another pension?
Remember: if you take your money as flexible income, from that point onwards, your annual allowance (the amount you can pay into a pension each year without a possible tax charge) will change. You’ll have a specific annual allowance in respect of your money purchase pension savings (the ‘money purchase’ annual allowance or MPAA), of £10,000 (unless you have already taken benefits through Capped Drawdown). You can find out more about tax and your pension here