Your defined contribution pension options at retirement: leave it invested, take cash, use drawdown, buy an annuity, or combine them.
A defined contribution pension is a pot of money rather than a promised income, and since the pension freedoms the decision about how to turn that pot into money is largely yours. This page sets the options side by side; each has its own guide, linked as we go.
Pension Wise, from MoneyHelper, gives free guidance on exactly this question to anyone aged 50 or over with a UK defined contribution pension; MoneyHelper describes Pension Wise as free and impartial, with government backing behind it. For a view on your own pots, tax, health and plans, the form on this page reaches an FCA-authorised adviser who can look at them together. Asking costs nothing.
What you have, and when you can start taking it
Personal pensions, SIPPs, stakeholder pensions and the pots built up in most modern workplace schemes are defined contribution pensions; MoneyHelper says defined contribution pensions are now the most common type. A final salary or career average scheme is different: it pays an income set by its own rules, and most of the choices below do not apply; see final salary pensions. If you are not sure which you have, ask the provider.
On timing, MoneyHelper's guidance is that the earliest you can usually take money from your pension is 55 (57 from April 2028), unless ill health forces early retirement or your scheme has an earlier protected pension age. Our guide to when you can take a pension covers those exceptions and the change in 2028.
Retiring and taking your pension are not the same event. Each scheme has a normal pension age, which the same guidance says "is often age 60, 65 or the same as your State Pension age", but reaching it does not force you to do anything: "You can leave your money invested in your pot until you need it." So if you carry on working, the pot simply stays invested.
If you plan to wait, check how the pot is invested: the guidance also notes that providers often move money to lower-risk funds near the normal pension age, and suggests reviewing your investment options, as you might miss out on extra growth.
The pension freedoms: what changed, and what the options are
The rules that took effect on 6 April 2015 under the Taxation of Pensions Act 2014 are known as the pension freedoms. HMRC's Pensions Tax Manual describes the current drawdown rules as those "applying from 6 April 2015", and adds that "Capped drawdown is available only where funds were first designated under an arrangement before 6 April 2015." In practice, from the minimum pension age you can take as much or as little as you like, paying income tax on most of it; the older capped arrangement is explained in flexi-access versus capped drawdown.
GOV.UK lists the ways to take what is left after any tax-free lump sum as "taking all or some of it as cash", "buying a product that gives you a guaranteed income (sometimes known as an ‘annuity’) for life" and "investing it to get a regular, adjustable income (sometimes known as ‘flexi-access drawdown’)". Add the option of doing nothing yet, and there are five routes.
| Option | What happens to the pot | Tax-free part | Is the income certain? | More detail |
|---|---|---|---|---|
| Leave it invested | Stays invested until you are ready | None taken yet | No income yet | This page |
| Tax-free lump sum, rest into drawdown | Mostly stays invested; you take income or lump sums as you choose | Up to 25% taken at the start | No: it depends on investments and how much you take | Pension drawdown |
| Tax-free lump sum, rest buys an annuity | Swapped for an income from an insurer | Up to 25% taken at the start | Yes, on the contract's terms | Pension annuities |
| Lump sums as and when | Stays invested; you take cash in pieces | 25% of each lump sum | No | UFPLS |
| Cash in the whole pot | Paid out in one go and the pension ends | 25% of the payment | No income from the pension | Cashing in a pension |
Every route that pays a lump sum shares the same tax-free limit. MoneyHelper says every route can include up to 25% tax-free, so long as it is paid out as lump sums and your combined tax-free cash across all pensions stays within the lump sum allowance. GOV.UK puts that allowance at £268,275, adding that someone with a protected allowance may be able to take more.
Not every scheme offers every route. Check with your provider which routes it supports, since not all do; HMRC's manual says "Pension schemes do not have to pay benefits as drawdown pension and many schemes do not offer this option." If yours does not offer the route you want, you can usually transfer to a provider that does, though check the charges and any guarantees you would lose.
The right mix turns on things only you know: other income, how long the money must last, your health, and whether you want to leave something to family. To talk that through with an FCA-authorised adviser, use the form on this page; a Pension Wise appointment is the free alternative, and the two are not exclusive.
Taking a tax-free lump sum and moving the rest into drawdown
You take up to a quarter of the pot tax-free, and the rest stays invested in a drawdown fund. MoneyHelper says that, as most or all of your pension stays invested, you can decide how much to take out and when, as a regular income or as lump sums when you need them.
You need not take the full quarter, and taking all of it now leaves less to produce an income later. GOV.UK says that after taking the tax-free lump sum you then have 6 months to start taking the remaining 75%. See claiming the tax-free lump sum, and taking your pension in stages for moving only part of the pot.
The price of the flexibility is that nothing is guaranteed. Investment values move both ways, so you may receive less than you put in. While the pot stays invested its worth moves until you withdraw, which means no income from it is assured. There is also a risk that the pot could run out if you take too much too soon. See how much to take from drawdown and our pension drawdown guide.
Drawdown is not a final choice: HMRC's manual confirms a lifetime annuity may be bought from "a flexi-access drawdown fund", so some or all of the pot can buy an income later. See switching from drawdown to an annuity.
Buying an annuity with some or all of the pot
An annuity swaps money from your pot for an income paid by an insurance company. MoneyHelper describes it as converting the rest into a regular, guaranteed income, which can last your whole life, as a lifetime annuity, or stop on a set date, as a fixed-term annuity. Once bought, that part of your pension no longer depends on how well your invested money performs, and a lifetime annuity cannot run out while you are alive.
The trade-off is that the terms are fixed on the day you buy, and the income depends on the price of annuities at the time. HMRC's manual adds that a scheme pension or lifetime annuity already in payment cannot later be switched into drawdown.
Before buying, look for a guaranteed annuity rate in your paperwork (MoneyHelper says these might be better than you can get on the open market), and remember GOV.UK's point that you do not have to buy from your own provider. Types of annuity are in our pension annuity guide; the comparison is in annuity or drawdown.
Taking cash: lump sums as you go, or the whole pot at once
You can leave the whole pot invested and take cash from it in pieces. MoneyHelper says 25% of each lump sum you take is tax-free and the rest is taxed along with any other earnings. This is an uncrystallised funds pension lump sum (UFPLS): the tax-free money comes as a quarter of every withdrawal rather than up front. See flexi-access drawdown versus UFPLS.
Or you can close the pension and take everything, from the minimum pension age, if your provider allows it. The catch is the same tax rule: the 75% that is not tax-free is treated as earnings and added to your other income for that tax year (6 April to 5 April), which can mean a large bill, and the money no longer grows inside the pension; cashing in your pension has the detail.
Small pots have their own rules: GOV.UK says you can usually take any pension worth up to £10,000 in one go, which it calls a "small pot" lump sum. How many you can take, and from which pensions, is in small pot pension rules.
Mixing the options, and treating each pot separately
The options are not a single choice made once. MoneyHelper says you can usually choose more than one way to take your pension, and some providers offer products that mix two or more options. Its own example is a sequence: take a tax-free lump sum at age 60, keep the rest invested in drawdown and draw on it as needed, then convert what is left into a guaranteed income at age 65.
If you have built up several pots over different jobs, each can go its own way. One could buy an annuity while another stays invested; combining pots first is optional. On tax-free cash from several pots, see lump sums from two pensions.
What applies whichever option you choose
Income tax
Apart from the tax-free part, withdrawals are taxed as income in the year you take them. GOV.UK warns of possible higher-rate tax on a big withdrawal, and of possibly owing more once the tax year ends. Scottish residents pay Scottish Income Tax on pension income, so the band a withdrawal falls into depends on where in the UK you live; the rates are on GOV.UK's Income Tax in Scotland page. MoneyHelper notes that providers often apply a temporary or emergency tax code to a first lump sum, so it can be over-taxed for a while; cashing in your pension covers how to get that back.
The money purchase annual allowance
If you are still working and paying in, taking taxable money changes how much you can go on saving with tax relief. MoneyHelper says that if you take taxable money from your defined contribution pension, such as a single lump sum, the £60,000 limit reduces to £10,000, which it calls the money purchase annual allowance (MPAA). The same guidance says a fixed-term annuity sets it off while a lifetime annuity does not; under HMRC's rules, however, a lifetime annuity bought on terms that let the payments go down is a trigger too. A small pot taken in one go usually does not trigger it. If you plan to keep contributing, an FCA-authorised adviser can look at contributions and withdrawals side by side before you take anything; send your details through the form on this page if you would like that conversation.
Benefits
MoneyHelper warns that pension withdrawals which lift your income or savings could change what benefits you can claim. Note the words income or savings: money you take out and keep in the bank can count, not just the income it pays. If you receive or may claim means-tested benefits, check with the benefit office or a benefits adviser before taking a large sum.
Inheritance tax from April 2027
For deaths from 6 April 2027 onwards, most unused pension funds count towards the estate for Inheritance Tax; this is enacted law (the Finance Act 2026, section 71), and pensions and inheritance tax and pension death benefits explain what it means.
Scams
MoneyHelper says an unsolicited call, visit, email or text asking you to move or withdraw your pension is likely a scam. The FCA's pension scams guidance adds: "If you’re contacted unexpectedly and offered a free pension review, it’s likely to be a scam." Offers to release money before the minimum pension age, outside the ill-health rules, are a warning sign the FCA names in its guide to avoiding pension scams, which also tells you to check that any adviser is FCA-authorised.
How to claim your pension: the practical steps
For a personal or workplace pension, you claim from the firm that runs the pot:
- Find every pot. GOV.UK says the Pension Tracing Service could help you find pensions you have paid into but lost track of; it gives contact details only and cannot confirm whether you hold a pension or value it.
- Check what each is worth and what it offers. Use your annual statement, and ask which of the options above the scheme offers, whether there are charges for withdrawals, and whether the plan has a guaranteed annuity rate or other guarantees.
- Get guidance or advice. A Pension Wise appointment covers, in MoneyHelper's list, the earliest access age, the ways of taking money, how each is usually taxed and spotting scams. A personal recommendation is regulated financial advice, which the same site files under "Consider paying for financial advice": a regulated adviser can help with recommending products and providers.
- Contact the provider and confirm. Tell it which option you want and ask what it needs from you; whether you can claim online depends on the provider. It then pays the tax-free part and the taxable part on its own timetable; how long each step takes is in how long it takes to cash in a pension.
Provider guides: Nest, The People's Pension, Aviva, Legal & General, Royal London and Scottish Widows.
Questions people ask about taking a defined contribution pension
How long does a private or workplace pension pay out for?
It depends on the option, not the pension. A lifetime annuity pays for the rest of your life and a fixed-term annuity until a set date; money in drawdown or taken as lump sums lasts only as long as the pot does, which is why it could run out if you take too much too soon. A final salary workplace scheme is different, paying an income set by the scheme; see final salary pensions.
How is a private pension paid out, and can it be monthly?
Into your bank account, with any tax already taken off: GOV.UK says the provider will deduct what you owe before you get the money. Annuity income can usually be paid monthly, or once, twice or four times a year. From drawdown you can usually take a regular income or lump sums as and when you need them, depending on what the provider offers.
What happens to my pension if I stop working, leave a job or am made redundant?
The pot stays yours and stays invested; only the contributions stop. You still cannot take it before the minimum pension age except on ill-health grounds, which are explained in cashing in a pension because of ill health. For Nest specifically, see Nest pension withdrawals.
What happens to my pension in a recession or market crash?
Money still invested, whether before retirement or in drawdown, can fall in value, and you could get back less than you paid in. Income from an annuity you have already bought no longer depends on how well your invested money performs. The risks, and the protection if a firm fails, are in are drawdown pensions safe.
Can I take my pension without a penalty?
From the minimum pension age, taking money in any of the ways above is not penalised, though it is taxed and some providers charge for withdrawals. Taking money before that age, outside the ill-health and protected-age rules, can bring heavy tax charges; see early withdrawal penalties.
What can MoneyHelper tell me about my retirement options?
MoneyHelper publishes guides and tools on every option above and runs Pension Wise appointments for people aged 50 or over with a UK defined contribution pension. Eligibility does not depend on how much your pension is worth. Its pages keep that free guidance separate from "Consider paying for financial advice"; see what Pension Wise is.
Your next step
The options are easy to list and harder to choose between. Pension Wise will take you through them for free. For a recommendation that fits your whole position, a couple of minutes with the form on this page will reach an FCA-authorised adviser.