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Taking your pension benefits (defined contribution pensions)

You can start taking money from a defined contribution pension once you reach the minimum pension age - currently 55, rising to 57 in 2028. You do not need to stop working to access your pension.
When you take benefits, you can use your pension pot to provide cash, income, or a combination of both.

Take lump sums as and when you need them (Uncrystallised Funds Pension Lump Sum or UFPLS)

You can withdraw money directly from your unused pension pot whenever you choose.

  • 25% of each withdrawal is tax free
  • The remaining 75% is taxed as income
  • This option is known as a UFPLS (Uncrystallised Funds Pension Lump Sum)

Important:
Taking even one UFPLS payment will trigger the Money Purchase Annual Allowance (MPAA), which reduces the amount of tax relievable contributions you can make into pensions in future.

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Take a tax free lump sum and keep the rest invested or take income

You can take up to 25% of your total pension pot as a tax free lump sum. You can then choose to:

  • leave the remaining fund invested, and/or
  • take taxable income when you wish

Tax free lump sum cap:

There is a limit on how much tax free lump sum you can take across all your pensions, known as the Lump Sum Allowance (LSA).

  • The current LSA is £268,275
  • If your total pension savings exceed £1,073,100, you will not be able to take 25% of the full amount tax free

Decide what to do with the rest of your pension pot

After taking any tax free lump sum, you can choose from the following:

Take further lump sums

These are taxable as income.

Take my whole pot as cash?

Yes, subject to provider rules - but:

  • Only 25% (subject to your available LSA) is tax free; the rest is taxed as income.
  • The first payment may be subject to emergency tax; HMRC reconciles later.
  • It may affect means-tested benefits and leaves no future income from that pot.

Buy an annuity

An annuity provides a guaranteed income, either:

  • for life, or
  • for a fixed period

You do not have to use your existing pension provider - you can compare the market through the open market option to find the best rates.

Use flexi access drawdown

You leave your pension invested and take regular or occasional withdrawals as you choose.

  • Your workplace pension provider may offer drawdown
  • If not, you can transfer your pot to a drawdown provider of your choice
  • Charges, investment options and eligibility vary - it's important to compare providers

Any income you take from these options will be taxed based on your personal circumstances.

Support and guidance

MoneyHelper and Pension Wise

MoneyHelper is a free, government backed guidance service. Through it you can access Pension Wise, which offers a free appointment (online or over the phone) if you are aged 50 or over and have a defined contribution pension.

Pension Wise can help you understand:

  • Your options for taking pension benefits
  • The tax implications
  • The questions to ask your pension provider

Pension Wise provides guidance, not regulated financial advice.

Getting financial advice

If you are unsure which option is best for you, you may wish to take regulated financial advice.
NFP Financial Planning Limited can provide financial advice if required.
For an initial, no obligation conversation about how NFP can help, you can either email pensions@nfp.co.uk or find further information here Financial planning overview | NFP

Things to think about before taking your pension

  • Tax bands: Larger withdrawals in one tax year can push you into a higher tax band. First payments can be taxed on an emergency code and adjusted later by HMRC (in-year reclaim routes available).
  • Will it last? Taking money reduces how long your pot can provide income.
  • Investment risk: If you keep money invested (e.g. drawdown), values can go down as well as up.
  • Benefits impact: Pension income can affect means-tested benefits.
  • Future pension saving: Taking UFPLS or any taxable drawdown income triggers the MPAA, limiting future tax relievable DC contributions that can be made.

Scams and protecting your pension

Pension scams are increasing. Be cautious of: unsolicited contact; promises of high returns with low risk; pressure to act quickly; or unregulated advisers. Check firms on the FCA Register and use government tools highlighted by The Pensions Regulator.