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Pension fund: what are your options?

Published 19 January 2016 by

Since Pension Freedoms were introduced in April 2015, it’s become a lot easier for people of retirement age to take their pension money in whatever form they want – whether that’s in set amounts each month or a lump sum. According to new data from the Financial Conduct Authority (FCA), it would seem the majority of Brits reaching retirement age could now be taking advantage of this option.

The FCA’s figures reveal that of the 178,990 people who accessed their pension fund between July and September last year, 120,969 people withdrew the full amount. Of those, only 13 per cent of people used the money to purchase an annuity.

What does this mean?

The findings have raised concerns that the pension freedoms put in place could be encouraging unsustainable financial behaviour from retirees. Pensions are designed to provide a long term income but with retirees taking out chunks of their pension fund early, it’s possible they could use it up too soon – meaning they’re left with only their State Pension (which will be £155 a week from April onwards) to sustain them. It’s important to note though that the figures don’t show whether any of those taking out their pension fund early had any other form of pension savings in place.

Not only that, but the figures raised concerns about the number of people not taking financial advice, or using the Government’s Pension Wise service. This is because the FCA’s data revealed that just 17 per cent of people cashing in their pensions took advantage of Pensions Wise, suggesting that some may not have fully understood the information given out to them.

Your options

With the arrival of Pension Freedoms, there’s now a lot to weigh up when it comes to working out which option best suits you and your pension when it finally comes to your retirement. To help you understand what your options are, we’re going to walk you through a few of them:

Leave your pension pot

If you can afford to, there’s nothing to say that you can’t delay taking your pension if you have enough to live on. By doing this your pot will continue to grow tax-free until you need it, giving you potentially more income when you eventually do start to access it. Just make sure that you check with your pension scheme or provider beforehand to see whether you’ll incur any charges for changing your retirement date and what the process for doing this will be.


Under the new pension rules, you won’t pay tax on the first 25% of money that you withdraw from your pot. If you want to, you could convert the rest of your pot into an annuity. This is a financial product that turns your pension contributions into a regular income once you retire. How much you’ll receive will depend on the rate the annuity provider offers and you will pay income tax on your annuity income.

To cover just yourself, you could look into a single life annuity or if you have a partner, a joint-life annuity will pay your income after you die to your partner or spouse.

Take out small cash sums

If you’d rather not take your whole pension fund out as cash, you can take small cash sums when you need to and leave the rest to grow tax-free. As we’ve said, for each cash withdrawal that you make the first 25% is tax-free and the rest counts as being taxable income. Bear in mind though, that you may be charged each time you make a withdrawal and there may be restrictions on how many withdrawals you can make in a year.