Taking some of your money as and when you need it

If you're not sure how your income needs will change in the future, you may wish to take money from your defined contribution pension pots as and when you need it. There are a few ways to take income from your pension, each with different tax implications. Here's an overview.

Income Drawdown

With income drawdown, you can take all of your 25% tax-free cash as a single lump sum or you can take it in instalments.

Each time you withdraw money, three times the value of your tax-free cash will be moved into another pot within your pension called drawdown. Here, it will continue to be invested. The remainder stays invested where it is in your pension pot.

You can take cash from drawdown whenever you want, but the amount you withdraw will be taxable.

Taking all your tax-free cash as a single lump sum

Here's an example:

Your pension pot is £100,000.

You take your 25% tax-free cash as a single lump sum, so £25,000 is paid to you tax free.

£75,000 will be moved in to drawdown (i.e. three times the value of your tax-free cash).

Good to know

  • Allows you to keep your pension withdrawals flexible around your other income, requirements and tax circumstances.
  • annual allowance for contributing into your pension is not impacted until taxable income is withdrawn, so it's a good choice if you want to make further defined pension contributions of more than £10,000 each year.

Taking some of your tax-free cash in instalments

Here's an example:

Your pension pot is £100,000.

Your tax-free allowance is 25%, so £25,000.

You take out £10,000 which is paid to you tax free.

£30,000 is moved to drawdown (i.e. three times the value of your tax-free cash).

£60,000 is left in your pension pot.

Out of this, £15,000 is still tax free and £45,000 will be taxable.

Good to know

  • Gives you the flexibility to take cash from your original pension pot (selecting taxable or tax-free money depending on what you've already taken) or from your drawdown (taxable).
  • Once you've withdrawn any taxable cash, you're not allowed to contribute more than £10,000 to your defined contribution pension pot each year.

Uncrystallised funds pension lump sum (UFPLS)

UFPLS gives you the option to take cash lump sums from your pension pot whenever you need to. 25% of whatever you take will be tax free, while the remaining 75% will be taxable. Whatever you don't take as cash stays invested in your pension pot.

Here's an example:

Your pension pot is £100,000. You take out £10,000 each time.

£2,500 is paid to you tax free. £7,500 is taxable.

After your first withdrawal, £90,000 is left in your pension pot.

Good to know

  • UFPLS gives you the flexibility to withdraw cash part tax-free, part taxable.
  • Once you've withdrawn any cash, you're not allowed to contribute more than £10,000 to your pension pot each year.

Important things to consider

  • You can carry on withdrawing money from your pension until your fund runs out, if you choose to. It means you need to be careful that you leave enough money for the rest of your retirement.
  • In the examples above we have assumed no investment changes to the value of your pension pot or drawdown, but as it stays invested, it still has the potential to go down or up in value and you may get back less than the amount invested. A sustained drop in the value of the investment means that you will have less money with which to take an income.
  • Tax rules and your personal circumstances may change in the future, which you should keep in mind when making your pension income decisions now. The information on this page is based on our current understanding of tax rules.
  • Your annual allowance changes to money purchase annual allowance once taxable income is taken. If you're still paying into your pension – or think you might do – think carefully before you take anything other than your tax-free cash out of it.
  • The Government Lifetime Allowance (LTA) may affect individuals whose total UK pension savings are near to or more than £1 million.
  • Any funds left when you die can be passed to your beneficiaries, who will be able to choose how to take the money.
  • If you are using any of the options described on this page while you are waiting to buy an annuity, you could get more or less income than you would have had you bought an annuity prior to taking any money on an ad hoc basis, as annuity rates are changeable.

What next?

  • Once you've decided which income option you'd like to go with, check with your pension provider. Not all pensions are the same and not all providers offer the same options so make sure you look into what you need to consider before you transfer your pension, including how much this may cost and whether you would lose any valuable benefits from your existing pension.
  • Work out how much tax you could pay on the cash you take out of your pension by using our Pension Withdrawal Tax Calculator.
  • Find out more about income drawdown from Aviva and start taking money from your Aviva Pension here.
  • We can give you all the facts about Aviva's products and services. We can't give you advice. If you are unsure whether a product or a service is suitable for you we can put you in touch with a financial adviser who can give you a personal recommendation. This service will be restricted advice and is limited to a number of product providers. There may be a charge for their advice. Alternatively, you can visit unbiased to find a financial adviser in your area. Nothing on this site is personalised advice or a recommendation. If you need a personalised recommendation based on your personal circumstances, you should seek financial advice.

Tax help for older people

A video from the charity Tax Help for Older People can help you understand the tax on your pension withdrawals.

Pension Wise has been set up by the government and offers free and impartial guidance for people retiring with defined contribution pensions. It will help you understand what your choices are and how they work.

You'll be able to get help on the Pension Wise website, over the phone or face to face.

If you are approaching retirement we recommend you get guidance or advice to help you understand your options.

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