Income options for your pension under the 2015 rules What are my options for cashing in my pension?

Pension freedoms in 2015 fundamentally changed the rules for cashing in your pensions. Understand the pros and cons of the main pension options.

Our table compares the options for turning a defined contribution pension pot into retirement income. This common type of pension is where you've paid in a regular amount but income isn't guaranteed (unlike with a final salary pension). 

Income options for your pension under the new rules
 Tax-free cash?Regular income?Guaranteed income?Can I run out of money?Will my tax rate go up?

An annuity

Up to 25% of fundUnlikely as plan income in advance

Flexi-access drawdown

Up to 25% of fundUnlikely as plan income in advance

Take the whole pot

Up to 25% of fundLikely

Take lump sums

25% of each withdrawalDepends on size of lump sums

 

So which option is likely to suit you? We give some more guidance below.

An annuity

Likely to suit you if....

  • You want a guaranteed income for the rest of your life
  • You don’t want your retirement income to be subject to stock market fluctuations
  • You want your income to rise with inflation

See our page on annuities for more

Flexi-access drawdown (also called 'income drawdown')

Likely to suit you if....

  • You want your money to continue to be invested
  • You want the flexibility to take sums out as and when you want
  • You want to take out different amounts each year

See our page on flexi-access drawdown for more

Take the whole pot

Likely to suit you if....

  • You need to get your hands on the money quickly
  • You’ve suffered from poor health and a guaranteed income for life might not be the best option
  • You want to re-invest your money or have quick access to it

See our page on taking the entire fund for more

Take lump sums (or 'uncrystallised funds pension lump sums')

Likely to suit you if....

  • You want to take varying amounts of money each time
  • You want to spread your 25% tax-free allowance over a period of time
  • You don’t want to expose your pension to investment risk

See our page on taking lump sums for more

Your pension queries answered

The Which? Money Helpline offers independent tailored guidance on a wide range of topics including pensions and retirement. If you're not a Which? member, and you'd like to get unlimited access to our Money Helpline experts, you can try Which? Money for two months for £1.

 

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  • Last updated: May 2016
  • Updated by: Paul Davies

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