How to prepare your pension for retirement


Published  01 April 2019
   4 min read

The pension freedoms provide a more flexible way of accessing your hard-earned cash, so it's important to know what the options are

You have more choice than ever before about how and when you take your pension. In 2015 new pension rules were introduced that, provided you've reached the age of 55, allow you to withdraw and spend your pension money exactly how you want and when you want.

But just because you can, it doesn't mean you should take advantage of these new pension freedoms straight away. To ensure you make the most of your savings, and that your money lasts for the whole of your retirement, it's a good idea to find out what all your options are and what their impact might be.

If you haven't yet touched your pension pot, you have four options.

Do nothing

Even if you've reached the age at which you originally thought you might retire, continuing to work and earn may now seem more appealing. You'll continue to have a structure to your life, see friends and colleagues and, importantly, earn an income to live on.

The longer you can leave your pension pot untouched, the longer it has to grow, free of tax, potentially giving you more income when you do eventually decide to reduce your work hours, or stop working altogether.

And, in some circumstances, if you pass away without touching your pension pot, it can be passed on, free of tax, to a loved one.

Buy an annuity

Until April 2015, most people used their pension fund to buy an annuity – a contract that provides a guaranteed income for life. For many people who want the certainty of a regular income, an annuity is still a good choice. As long as you live, it'll pay out an agreed amount of cash every one, three, six or 12 months.

Some people don't like annuities because the income you receive seems very small compared to the size of your pension fund. And, with certain exceptions – as explained below – when you die your annuity payments also end.

But you can opt to take up to 25% of your pension pot as tax-free cash, and if you suffer from a medical condition that could shorten your life, you're likely to be entitled to a larger income.

You can also choose to have the annuity income increase in line by a fixed percentage every year, or in line with inflation, and for the income to continue to be paid to your husband, wife, civil partner or unmarried partner after your death.


Putting your pension into ‘drawdown’ allows you to take 25% of your pension fund upfront as tax-free cash. The rest can be left invested for you to use much like a bank account, drawing out cash when you need it, subject to tax at your normal rate.

Should you decide you want the security of a guaranteed income at a later date, you can still use some or all of your remaining pension fund to buy an annuity.

Taking cash lump sums

Finally, you can leave your pension fund where it is and take lump sums of cash out as and when you need them. The technical term for this is ‘uncrystallised funds lump sums’ or UFPLS, often called Flumps. Each withdrawal is 25% tax free, while the remainder is subject to tax at your normal income tax rate. You can only opt for Flumps if you haven't taken any tax-free cash or income from your pension fund.

If you choose drawdown or Flumps, it's important to work out how much you can afford to take each year without leaving yourself short of money later on. After all, your pension fund has to last your entire life.