Taking out money when you need it

If you're not sure how your income needs will change in the future, you have the option 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.

Good to know

• You may have the flexibility to withdraw cash part tax-free, part taxable.
• Once you've withdrawn any taxable cash, you're not allowed to contribute more than £10,000 to your defined contribution (money purchase) pensions each year (tax year 2023/2024).

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for contributing into your defined contribution (money purchase) pensions is not impacted until taxable income is withdrawn when it will reduce to £10,000 each year (tax year 2023/2024). Until then, you can take the tax-free lump sum leaving the rest in drawdown and still make further money purchase contributions of more than £10,000 each year

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• Once you've withdrawn any taxable cash, you're not allowed to contribute more than £10,000 to your defined contribution (money purchase) pensions each year (tax year 2023/2024).

• 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 as well as 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 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. Information on this page is based on our interpretation of tax rules, and tax benefits will depend on an individual's circumstances.
• Your annual allowance reduces to £10,000 (tax year 2023/2024) for any defined contribution (money purchase) pension arrangements you have once taxable income is taken. Other pension arrangements may also be affected. If you're still paying into your pension – or think you might do – think carefully before you take anything out of it. 
• The Lifetime Allowance (LTA) may affect individuals whose total UK pension savings are near to or more than £1,073,100 in tax year 2023/2024.
• Any funds left when you die can be passed to your beneficiaries, who may be able to choose how to take the money. To find out more about how your money purchase pension will be taxed after you die visit gov.uk/tax-on-pension-death-benefits
• 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.

• Pension Wise from MoneyHelper is a free, impartial, government-backed service. If you're 50 or over and you want to understand your retirement options, make it your first port of call. Visit the MoneyHelper website or call 0800 138 3944 for details.
• 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. If you are thinking about transferring your pension to another provider to take advantage of different options, you should be aware that there is no guarantee that you will be better off by doing so. You should make sure you consider the decision carefully, including how much this may cost and whether you would lose any valuable benefits from your existing pension.
• Work out how much tax you might have to pay on the cash you take out of your pension.

Using your pension money will leave less money in your pension, and will have an impact on:

• The money you’ll have in retirement. Anything you use now will mean less, or even nothing at all, is left in your pension.
• The value of your investments. If you choose to only withdraw some of your money, what’s left will remain invested, and could go down as well as up in value.
• The access you have to your money. If you decide to buy an income for life (an annuity), you can't generally change it or cash it in, even if your personal circumstances change.
• The inheritance you can pass on. This depends on what you decide to do with your pension money