Your 6 Options when Considering to Take Your Pension Pot before You Retire

Have you ever wondered whether it would be a good idea to take your pension pot before you retire?


After all, in April 2015 the law changed so that you can at present access your personal or workplace pension from the age of 55.


Does this mean that you should take control of your savings or spend them as you see fit by withdrawing a portion or all of your funds? You can take the first 25% as a tax-free lump sum. Surely that’s an incentive to take at least this amount out of your pension pot?


We have compiled a list of six options for you to make you aware of the potential highs and lows of taking your pension pot before you retire.


1. Don’t Take Your Pension Pot

You don’t have to take money from your pension pot just because it’s available. It may be much safer to leave your money where it is until you actually retire.


The money in your pension pot is tax-free, and with the right investment and continuing contributions, it should grow at a steady rate. You will have more money available when you need it.


But, remember, with investments the value of your pension pot can go up or down.


So, let’s look at the other options.


2. Draw Part of Your Pension Pot – Flexi Access Drawdown

The option of Flexi-Access Drawdown is currently available to you from the age of 55. It was introduced in April 2015 to give you a hassle-free option to withdraw as much or as little from your pension pot as you wish. At the same time, you can choose how your remaining funds are invested.


Sounds good, but let’s look at the pros and cons first:

Advantages of Flexi Access Drawdown


  • Take up to 25% of your pension tax-free, as a lump sum or in portions. You can spend the money however you wish.


  • Your funds can still grow, as the rest of your pension pot is still invested.


  • Draw a regular income, managing the amount and intervals to suit the performance of your investment or your needs.


  • Leave the remaining funds to a nominated beneficiary, if you pass away before you’ve taken your full pension pot.


The Disadvantages of Flexi Access Drawdown


  • There is a chance that your retirement fund could run out sooner than if it were left invested.


  • As the value of your investments can rise and fall, the performance of your funds is never guaranteed.


  • Take more than your 25% tax-free allowance, and you’ll be subject to the money purchase annual allowance (MPAA). This would limit your tax relief on contributions to just £4,000 instead of £40,000 per year.


You must weigh up the pros and cons before deciding on taking the Flexi Access Drawdown route. If you need help, consult an FCA-registered Financial Adviser.


3. Take Small Cash Sums from Your Pension Pot

Another option is for you to take smaller cash sums from your pension pot until it runs out. In summary, this option looks like this:


  • You can decide how much you want to take and when.


  • You get your 25% tax-free amount over time. So the first 25% of each sum you take is tax-free and the rest taxable.


  • Check first if your pension provider offers this option and charges a fee for taking cash out of your pension pot.


  • If your provider doesn’t offer this option, you could transfer your pension pot to another provider. But you may be charged for the transfer.


Again, you should consider the advantages and disadvantages carefully or seek professional help.


4. Mix Your Options

You could mix the options available for taking your pension pot as follows:


  • Use some of your pot for a Flexi Access Drawdown and some to buy a guaranteed income, also known as an annuity.


  • If you have several pension pots, you can decide to use a different option for each one. Take cash sums from one pot and leave the others untouched or vice versa.


  • Note that not all pension providers offer these options. So, check with your providers first.


5. Use Your Pension Pot to Buy an Annuity

You may wish to buy an insurance policy that provides you with a guaranteed income, an annuity.


In summary:


  • You get a fixed income for a defined number of years or the rest of your life. You can choose.


  • On taking 25% of your pot as a tax-free cash sum, you buy an annuity with the remaining 75%.


  • You must pay tax on your annuity income.


  • You could also arrange for a continuing income to a surviving dependant in case you pass away.


There are different types of annuity, and some may be more suited to your circumstances than others. Consider taking advice from a  financial adviser to help you choose what the best option for you is.


6. Take All of Your Pension Pot as Cash

You have the option of taking all of your pension pot as cash.


Consider the following:

  • You would take all of your pot in one go.


  • The first 25% is tax-free, and you pay tax on the remaining 75 %.


  • You must pay your tax at the time of taking the money from your pot which could be a higher rate of tax than you paid before. You received tax relief on paying your contributions, which no longer applies on taking the money.


  • Your pension provider will pay you the cash, less the tax you owe.


  • The money taken from your pension pot is added to any other income you have over the tax year, such as your salary, any savings and benefits you may receive.




So, now you’ve got all the options to consider whether you should take your pension pot before you retire or not.


If you are confused or have any doubts, we would recommend that you consult an FCA-registered Financial Adviser.

Should you be based in or around the Yorkshire region, we would be pleased to talk to you. Please get in touch.

If you are based elsewhere in the UK, you can find a regulated adviser at Unbiased.


Risk warning

Please note that when you are investing, you are putting your capital at risk. The value of your investment can go down as well as up, and you could get back less than you invest.

Also, beware of pension scams. If a company contacts you and claims they can help you access your pension even earlier than 55, they are most likely untrustworthy. You should never give out any personal details about your pension or other finances. Always check the Financial Conduct Authority register and the Financial Conduct Authority warning list to see who is regulated and who is to be avoided.

The information in this post should not be regarded as financial advice.