What Are Your Best Pension Options?

Until recently there was limited scope when considering your best pension options. All that changed with the new pension freedoms (effective April 2015). You now have five main options:

Flexi Pension Drawdown.

Guarantee a fixed income for your lifetime using an annuity.

Take all, or part, of your pension as a cash lump sum.

Leave your pension pot untouched.

Move and/or consolidate pensions

Each of these options is discussed in more detail in our retirement planning guide. The best way forward depends on personal circumstances. There are tax implications, particularly with option 2, so you should consider your pension options carefully. Remember, it is not possible to access any pension benefits until you are 55 years old

Taking some action is not always the best move. You should always ensure you read your policy documentation carefully and consider any charges and fees that may apply.

The Pension Drawdown Option

The flexibility offered by pension drawdown does make it an attractive option for some but it is important to compare and contrast it with more traditional options as part of your retirement planning. Pension Drawdown is not necessarily a stand alone option but can be combined with and used alongside other options such as an annuity or an ISA.

Pension drawdown gives you more control both in how you take income from your pension and how the balance is invested. It is also possible to pass on any remaining pension fund to your spouse or children when you die, tax free is some circumstances.

You (and/or your adviser) are responsible for managing your investments to maximise growth while minimising risk. Poor investment decisions can have a serious impact on the value of your fund. If you do not manage your income appropriately there is a risk you could outlive your pension funds.

The Annuity Option

In contrast to drawdown, annuities guarantee a fixed income for life. You cannot outlive your pension fund, however long you live. ‘Joint-life’ annuities will also pay a spouse a pension until they die. An Annuity, therefore, provides a lifetime guarantee but there is no value to potentially pass on to children and the pension income is fixed.

Annuity rates are currently relatively low. It is important to carefully compare and contrast the Annuity option with drawdown when deciding on your best pension options. At present, once you buy an annuity you can’t switch to drawdown at a later date, or transfer to another annuity product. It is, however, possible to convert whatever remains in a drawdown fund to an Annuity

Take A Cash Lump Sum

You can take all your available pension fund as cash and for smaller funds, this may be beneficial.  As only the first 25% is tax-free it is vitally important to consider the tax position. Personal circumstances, such as ill health, may make cashing in a viable option but it is important to have a solid plan of exactly what you will do with the funds.

Taking a tax free sum is an option (once you are over 55 years old) but it will obviously mean you will have less when you do actually retire. However, you may decide to carry on working for longer or continue working but at reduced hours. Everyone’s personal circumstances and plans for retirement are different.

Take No Action

Leaving your pension fund untouched and with your current provider may be the best way forward. The pension scheme may offer valuable benefits that would be lost if the pension were moved. It may offer investment returns at or above the industry average that would be difficult to match elsewhere. Personal circumstances such as the length of time to retirement may dictate it is best to stay where you are.

Move Or Consolidate Pensions

You may have several defined contribution type pensions that it could be best to consolidate into a single pension pot. You may have one or more pensions that are not performing to expectations and it may be best to move these to another provider. In both cases, it is important to check you are not giving up valuable benefits and fees and charges.

Should you wish to discuss your best pension options and what may be the best way forward given your specific circumstances then please do not hesitate to give us a call on 0800 0843 8341 and we will be happy to help. If you would like us to call you back complete the form below. Or, If you would just like to ask a quick question email us or open a Chat.


This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are correct at the date of publication.

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