Taking money whenever you need to

How can I take money whenever I need to?

Having the option of using your pension money can be a useful support for any unexpected expenses. You may choose to just take money from your defined contribution pension, whenever you need to, from the age of 55. You can do this in a few ways, with different tax implications for each.

Income drawdown allows you to take 25% of your pension tax-free as either one lump sum or in instalments. It’s up to you.

Every time you take money out, three times what you take will be moved into the drawdown part of your pension. It stays invested, as does the rest of your pension.

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

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

Here’s an example:

Graph to illustrate Your pension holds £100,000.

Your pension holds £100,000.

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

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

Graph to illustrate £75,000 will move into drawdown (a taxable amount, three times your withdrawal).

£75,000 will move into drawdown (a taxable amount, three times your withdrawal).

Good to know

  • Drawdown lets you keep your pension withdrawals flexible around your other income, requirements and tax circumstances.
  • Your annual allowance for contributing into your pension won’t be affected until taxable income is withdrawn. It could be 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 money in instalments

Here’s an example:

Graph to illustrate Your pension holds £100,000.

Your pension holds £100,000.

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

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

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

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

Graph to illustrate £30,000 is moved to drawdown (a taxable amount, three times your withdrawal).

£30,000 is moved to drawdown (a taxable amount, three times your withdrawal).

Graph to illustrate The remaining £60,000 is left where it is.

The remaining £60,000 is left where it is.

Graph to illustrate Out of this amount, £15,000 is available tax free, and £45,000 is taxable.

Out of this amount, £15,000 is available tax free, and £45,000 is taxable.

Good to know

  • This gives you flexibility to take money from your original pension (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 will be subject to tax charges if you contribute more than £10,000 to your defined contribution pension in a single tax year.

Uncrystallised funds pension lump sum (UFPLS)

UFPLS gives you the option to take cash lump sums from your pension whenever you need to. Each time you take money out, 25% will be tax free, and 75% will be taxable. What you don't take stays invested in your pension.

Here’s an example:

Graph to illustrate Your pension is £100,000. You take out £10,000 each time.

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

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

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

Graph to illustrate After your first withdrawal, £90,000 is left in your pension.

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

Good to know

  • UFPLS gives you the flexibility to withdraw cash part tax free, part taxable.
  • Once you've withdrawn any taxable cash, you will be subject to tax charges if you contribute more than £10,000 to your defined contribution pension in a single tax year.

Things to consider

  • You can carry on taking money from your pension until your fund runs out, but you need to make sure that you have enough money left for the rest of your retirement.
  • In the examples above, we’ve assumed no investment changes to the value of your pension or drawdown. However, 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 you invested. A sustained drop in the value of the investment means that you will have less money from 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, (MPAA) 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 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're using any of the options on this page while waiting to buy an annuity, you could get more or less income than if you'd bought an annuity beforehand, because annuity rates are changeable.

What next?

  • Work out how much tax you could pay on what you take out of your pension by using our pension withdrawal tax calculator.
  • Find out more about drawdown from Aviva and how to start taking money from your Aviva Pension.
  • Before you decide, contact your pension provider. Different providers may offer different options. If you are thinking about switching to a new provider it's important to check how much it costs, and whether you'd lose any valuable benefits from your existing pension by doing so.

While we can give you all the facts about our products and services, we can’t give you personalised financial advice and nothing on our website is a personal recommendation. If you’re looking for a personal recommendation or you’re not sure whether a product or service is right for you, you should ask a financial adviser who may charge for their service. We can provide details of 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. Alternatively, visit unbiased to find an independent financial adviser near you.

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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