What can I do with my private pension?

Ensuring you have enough income for retirement is a complex business. But with careful planning, it can be done.

In this guide, we’ll take you through the main options available to you once you reach retirement age.

what can i do with my pension

What age do I get my pension?

Your state pension age depends on when you were born. You can use this tool to find out when yours is.

Private pensions are generally accessible from the age of 55. However, you need to make sure it will last your full retirement, so it’s usually not advisable to start drawing from it until you stop working.

What to do with your pension pot

When you decide to draw your pension, you have the following options:

  • Take a tax-free lump sum
  • Buy an annuity
  • Income drawdown
  • Combination of the above

You may find that your current pension provider has restrictions on what you can do with your pot. If you want to use an option they don’t allow, remember you can transfer your pension to another provider.

Take a tax-free lump sum

Withdraw up to 25% of your pension pot tax-free as a lump sum.

There are two ways of doing this:

  • Take 25% of your total pot in one go. The total sum is tax-free
  • Take smaller chunks over time. 25% of each chunk is tax-free

If you take the lump sum, be sure to have a plan. Many people simply take the money and leave it in a current account, where inflation degrades its value. The growth potential of the remaining pot is also limited, now that it’s smaller. Use the sum to make home improvements, go on holiday or help the next generation buy a starter home.

Many pension providers stipulate that if you take the lump sum, you must begin drawing from the pension at the same time. If you wish to take it before you retire, you’ll need to put the pot into a flexi-access drawdown account, where you can leave the remainder untouched until you’re ready to stop working.

Taking smaller chunks – known as Uncrystallised Funds Pension Lump Sum (UFPLS) – has a couple of major disadvantages:

  • Only 25% of each chunk is tax-free. The remaining 75% is subject to normal income tax, which could push you into a higher tax bracket, disqualify you from certain state benefits, and reduce the amount you get from your pension.
  • It reduces your annual pension allowance (the amount you can pay in each year) from the usual £40,000 to £4,000
    Because of these pitfalls, think carefully before using UFPLS if you’re still in employment.

Buying an annuity

Get a guaranteed income for the rest of your life.

Annuities are a good option if you’re worried you may not be able to make your pension pot last by yourself.

There are two main types of annuities:

  • Basic lifetime annuities pay the same monthly amount for the rest of your life, based on the value of your pot when you buy the annuity
  • Investment-linked annuities pay a monthly income that rises and falls with the investment performance of your pot. Some offer a guaranteed minimum

Although annuities are excellent for financial security, the trade-off is their relatively high fees and inflexibility. Once you buy an annuity, you can’t (usually) get out of it.

As such, many financial advisers counsel against putting your whole pot into an annuity. With a fixed income, you’re ill-equipped to react to the unexpected. And the management fees eat into the take-home value your life savings.

Income drawdown

Take what you need, when you need it, and leave the rest invested.

With a flexi-access drawdown account, you can pay yourself an income out of your pension pot and leave the rest to grow. This keeps you in control and allows you to continue to take advantage of market growth.

The risk, of course, is that you live longer than expected. Or spend it quicker than intended. But carefully managed, you can make the money last for your retirement, with more flexibility – and lower fees – than an annuity.

Combination of the above

The best approach is often a balance of all your options.

You could, for example, take the 25% tax-free lump sum to make some home repairs and treat yourself to a holiday. You could use a portion to buy an annuity for security and draw down the rest.

The real answer depends entirely on your personal circumstances. The best advice is to speak to a financial advisor for individualised guidance before you commit to anything.

Using your property to top up your pension

If you’ve got a smaller than expected pension pot, or simply want to increase your later-life income, there are ways of topping up your retirement income – especially if you own your own home.


Downsizing is a veritable rite of passage, especially if your property is your pension.

When your kids have flown the coop, you might find you don’t need so much space. Perhaps you’d like to move closer to your loved ones anyway.

Moving from a four or five-bedroom house to a two bed in a cheaper area can get you a significant lump sum – especially if you’ve paid off the mortgage. Reinvested wisely, the capital could last you for decades.

If you’re still paying your mortgage – as an increasing number of retirees are – downsizing could also help reduce your monthly housing costs, or even eliminate them.

Equity release

If you don’t want to move, you can still release equity from your property.

One way to do this is with a lifetime mortgage. If you’ve paid off your mortgage, a lifetime mortgage enables you to borrow a lump sum against the eventual sale of your property.

With most lifetime mortgages, you only pay the interest on a monthly basis, with the balance recovered when you sell the house. Some – such as ours – have a negative equity guarantee, meaning you never pay more than the value of your home. Find out more on our equity release page.

Doing this could enable you to help your children get onto the property ladder, or study debt-free, while you’re still around to see it. Just be aware that it could reduce the eventual value of your estate or prevent your family from inheriting the family home.

Looking after loved ones

One final – but crucial – consideration, is what happens to your retirement fund when you die. This is especially important if you have a larger fund than your spouse or partner.

What happens to your pension when you die?

If you have a single-annuity, payments will continue to be made to a ‘nominated beneficiary’ for the length of the ‘guaranteed period’ – usually 5-10 years from the start of the annuity – provided there is one.

If you have a joint-annuity, payments will continue for the surviving partner, usually at a reduced rate (around half). Payments are tax-free if you die before 75, taxed normally if you live beyond 75.

Anything in income drawdown can be transferred to a nominated beneficiary. Again, if you die before 75, it may be tax-free (if claimed within two years). Otherwise it’s subject to the usual taxes.

Life insurance

Finally, you should consider whether to take out over-50s life insurance. This pays out a pre-specified lump sum on the event of your death, usually around £5,000. Find out more about OneFamily Over 50s Life Cover here.

The money can help ease the transition by making up for lost earnings and paying funeral expenses – which can be difficult before probate is organised.

For more ways of topping up your retirement income, find out about alternative investments for retirement, and other ways to earn money from your property in retirement.