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Choosing income options

You have more choice and flexibility in how you set up your retirement income than ever before. So there are more things to consider – tax rules, legislation, the decisions you make now, all of these will affect the options available to you in the future.

Approaching retirement?

If you’re planning to retire in the next few years, you may want to start thinking about what you’re going to do with the pension pot you’ve built up. There’s a great deal of flexibility about how you take an income from your savings. That means it’s a good idea to check out the pros and cons of the various options, and see how they will each affect your lifestyle, the tax you pay and the amount you can pass on to your family.

Your income options

The headings below outline the main ways you can take money out of a defined contribution pension, also known as a money purchase pension. (With a defined benefits or final salary scheme, your options are likely to be different.)

It is usually possible to take money out of your pension from when you are 55, and you will probably be able to take 25% of your pot as tax-free cash.

It’s worth bearing in mind that you don’t have to choose just one of these options. You can combine two or more options if that is better for you – for example, you might want to buy an annuity with part of your pot and take lump sum withdrawals from the rest. If you have more than one pension pot, you can choose a different option for each of them.

Remember to shop around
How much of my pot can I take as tax-free cash?
Will I have to pay tax on my withdrawals?
Are there specific aspects of each option that I need to bear in mind?
Can I be sure my pension will last for the rest of my life?
Who will inherit my pension savings if I die?
Is this a final salary pension?

Some points to bear in mind

  • If you withdraw any money from your pension over the amount you can take tax-free, it will affect the amount you can carrying on saving in pension plans with the benefit of tax relief. This will go down from £40,000 to £4,000 and is known as the money purchase annual allowance.
  • If your pension pot is worth more than the lifetime allowance of £1.0731 million, you may have to pay a tax charge.
  • If your pension pot is worth less than £10,000, you may be able to withdraw the whole amount as a single lump sum, including 25% tax-free. This is known as a ‘small pot’ withdrawal, and it will not count towards your money purchase annual allowance or your lifetime allowance.

Find out more about pension allowance and tax benefits.

Calculate flexible income

Work out what you'd get using pension drawdown to create a flexible income and how long your money might last.

Calculate your retirement income

Estimate what you’d receive from flexible income or guaranteed income or a combination of both.

Need some help?

Fidelity Workplace Investing Service Centre

If you’re unsure about any of your retirement income options and would like to find out more about your Fidelity pension, call our Workplace Investing Service Centre.

0800 3 68 68 68

Pension Wise

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. Guidance is available at or over the phone.

0800 138 3944