You’re retiring soon

Take your pension savings in a way that suits your retirement plans

Whether you plan to carry on working full-time or part-time, retire completely or simply want to consider your options, recent changes to pensions legislation give you much more flexibility when deciding how to take your pension.


What are your options?

Take a mix of lump sums and income from your savings, or just do nothing for now and leave your money invested. Choosing what to do with your pension savings is an important financial decision, so take a good look through your options before deciding.

Leave your money invested

There’s no longer a time limit on taking your pension savings. So, if you don’t need your savings to create an income just yet, they can stay invested until you do.

What to expect

  • Potential larger pot when you need an income if your savings continue to grow.
  • Increase your savings by continuing to make contributions.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75.

What to consider

  • The value of your pension fund is not guaranteed and could go down as well as up. You may get back less than you invested.
  • You may miss out on income in the short term that you will never recover.
  • Review your investments to make sure they’re providing the right level of risk and return for your future.
  • Your beneficiaries will pay tax on the money from your pension if you die when you are over 75.
  • The tax treatment of tax-free cash may change in the future.

Take your savings as you need them

You can take partial payments directly from your pension, known as ‘Uncrystallised Funds Pension Lump Sums’ (UFPLS). Your remaining savings stay invested until you want to cash them in or turn them into an income.

What to expect

  • Potential larger pot when you need an income if your savings continue to grow.
  • Take as much or as little as you like, depending on the minimums imposed by the provider.
  • 25% of each partial payment will be tax-free. 75% will be taxed as income at the marginal rate you pay.
  • As your remaining savings stay invested this gives them an opportunity to continue to grow.
  • Take partial payments from age 55.

This option isn’t available from all providers, so we suggest you speak to your current pension provider to find out what they offer. LFSL do not provide this option.

What to consider

  • You still need a source of income after you have cashed in your pension savings.
  • You may run out of money for your retirement if you do not manage your partial payments appropriately.
  • Your partial payment becomes liable to inheritance tax after you cash it in.
  • Review your investments regularly so they continue to provide you with the payments you want.
  • You’ll only receive tax relief on up to the Money Purchase Annual Allowance each year after you start taking partial payments.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75. They will be taxed if you die after 75.
  • You may end up paying a higher rate of tax, so reducing the amount you were expecting to receive.
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Helen wants to take ad-hoc lump sum top ups

Helen has an employer pension plan that provides her with a regular income. She also has a personal pension that she’d like to use to top up her income and pay for holidays. She decides to cash in a part of her personal pension, being careful not to push her annual income into the higher rate tax band. She speaks to a financial adviser about reviewing her investments so she can continue to take lump sums for the next five years.

  • Take lump sums when you need them
  • Use the cash how you like
  • Remainder stays invested

This case study is for illustration only. It should not be taken as advice.


Take all your savings as cash

Take your entire pension savings as a cash lump sum if you don’t need to, or don’t want to use it as an income.

What to expect

  • Access your pension when you reach age 55.
  • Take up to 25% of your cash lump sum tax-free.
  • The remaining 75% is taxed as income at the marginal rate you pay.

This option isn’t available from all providers, so we suggest you speak to your current pension provider to find out what they offer.

What to consider

  • You still need a source of income after you have cashed in your pension savings.
  • You may end up paying a higher rate of tax, so reducing the amount you were expecting to receive.
  • Your cash lump sum becomes liable to inheritance tax after you cash it in.
  • You’ll only receive tax relief on up the Money Purchase Annual Allowance each year after you cash in.

Small pot lump sum payments

There are special rules about cashing in pension savings worth £10,000 or less.

  • Take up to three personal pension pots (up to £10,000 each) as small pot lump sum payments in your lifetime.
  • Take your money from age 55 or over, unless you are retiring early due to ill health.
  • Usually 25% of your lump sum will be tax-free but you’ll be taxed on the remaining 75% at your marginal rate.
  • No additional restriction of your annual allowance, unlike taking a partial payment

Take a flexible income

Take income from your pension savings when it suits you. You can vary the amount of income you take and how often you take it. The rest of your pension savings stay invested until you need them. We provide flexible access to your retirement savings through our two income drawdown plans.

What to expect

  • Start taking an income from age 55.
  • Take up to 25% of your pension savings tax-free before you take a flexible income.
  • Use part or all of your savings to provide an income.
  • Could help with tax planning by varying the amount you take and when you take it.
  • Choose where to invest your remaining savings to provide you with an income in the long-term.
  • Switch investments as you wish.
  • Pass on remaining savings tax-free to your beneficiaries if you die before you reach age 75.

Some of these options may vary between providers.

What to consider

  • Carefully plan how to invest your pension savings so they last for as long as you need them.
  • Review your investments regularly so they continue to provide you with the income you want.
  • You may run out of money for your retirement if you do not manage your income levels appropriately.
  • Income is not guaranteed.
  • You'll pay tax on your income at your highest income tax rate.
  • You may no longer remain eligible for state benefits when you start receiving income from a plan.
  • You’ll only receive tax relief on up to the Money Purchase Annual Allowance each year after you start taking a flexible income.
  • Shop around for the most suitable drawdown plan for your needs.

Take an annuity for guaranteed income

An annuity provides you with a guaranteed regular income for a set amount of time, usually for the rest of your life.

You don’t have to take an annuity offered by your pension provider. You should shop around for the most suitable annuity for your needs. You can buy an annuity from any company that offers one. This is called the ‘Open Market Option’.

What to expect

  • Take an annuity from age 55.
  • Take up to 25% of your pension savings tax-free before you take an annuity.
  • Use part or all of your savings to buy an annuity.
  • The guaranteed income you receive is based on your personal circumstances and current rates.
  • Enhanced’ annuities can provide more income if you smoke, are overweight or have a health condition.

This option isn't available from LFSL, you would need to transfer to another provider.

What to consider

  • You can’t change your mind once you have bought your annuity. This may change in the future.
  • Certain annuities will continue to pay out to dependants after you die.
  • When purchasing an annuity the capital used cannot be passed on.
  • Inflation may reduce how much you can buy with a fixed annuity over the years.
  • You'll pay tax on your income at your highest income tax rate.
  • You’ll only receive tax relief on up to the Money Purchase Annual Allowance each year after you start taking a flexible annuity income.

Helping you to plan

Tax information

Put simply, you don’t pay tax when saving into your pension, but you do when taking your pension.

Countdown calendar

If you have a pension with us, we explain what happens as you get closer to retirement.

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