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Overview of options for cashing in your pension

Options for cashing in your pension – overview

By Paul Davies

Article 1 of 8

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Options for cashing in your pension – overview

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 fund Yes Yes No Unlikely as plan income in advance

Flexi-access drawdown

Up to 25% of fund Yes No Yes Unlikely as plan income in advance

Take the whole pot

Up to 25% of fund No No Yes Likely

Take lump sums

25% of each withdrawal No No Yes Depends 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 reinvest 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 would like to get unlimited access to our Money Helpline experts, you can try Which? Money for two months for £1.

  • Last updated: January 2017
  • Updated by: Paul Davies

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