Choosing income options

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 savings 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.

Factor in your State Pension

The BNP Paribas Pension isn’t the State Pension – it's a completely separate arrangement, but the State Pension should form part of your retirement planning. 

The State Pension is paid by the government when you reach retirement age and is an additional source of income to your workplace pension. The amount you receive from the State Pension is based on the National Insurance contributions you have paid. 

Check your State Pension forecast by clicking here and what age you are eligible to start receiving it here.

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 (age 57 from 2028), and you will probably be able to take 25% of your savings 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 multiple pension savings accounts, you can choose a different option for each of them.

• 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 £60,000 to £10,000 and is known as the money purchase annual allowance.
• If your pension savings are 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.
• Many pensions allow you, from the age of 55 (57 from 2028), to take up to 25% of your savings as tax-free cash. Your 25% tax-free cash entitlement is subject to a limit of £268,275.

Find out more about pension allowance and tax benefits.