Your pension income options for 2024

If you’ve contributed to one or more defined contribution (DC) pension schemes, what choices do you have for accessing your pension savings?

Once you reach the age of 55 (changing to age 57 on 6 April 2028), a variety of options become available. While pensions can be intricate, we’ve distilled your main choices into a straightforward summary.

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Please note: this article is for information only and is not a substitute for professional advice or guidance.

Your income options

First, you could choose to leave your pension savings where they are. If you’re not ready to start drawing income from your pension savings, you can opt to keep your money in its current pension scheme/s. If you choose this option, your money will stay invested, so it will be subject to fluctuations based on investment performance.

You also have the option of taking lump sums from your pension savings. You typically have the option to withdraw up to 25% of your pension savings as an initial tax-free lump sum. After doing so, you can leave the remainder invested and take additional lump sums later on – but these will be taxable.

You can also decide to cash in your pension savings. There is nothing stopping you from simply taking all of your pension savings at any point after reaching age 55. The first 25% will be tax-free, but you’d pay tax on the remaining 75%. If this does sound of interest, bear in mind that you risk pushing your income for the year into a higher tax bracket.

If a guaranteed income is important to you, you can use your pension savings to buy an annuity. An annuity gives you guaranteed income for a fixed term of your choosing or for the rest of your life. You’ll know exactly how much income you’ll get, and it won’t be affected by ups and downs of investments.

For more flexibility and the chance to benefit from investment growth, flexi-access drawdown may suit you better. However, with drawdown the value of your invested savings is subject to market fluctuations, and there’s no guaranteed income.

Finally, you can customise your retirement income by blending various options. As an example, you may buy an annuity to cover your essential living expenses, but place some of your pension savings into drawdown for flexible ad-hoc withdrawals.

Important points to remember

Making a choice about what to do with your pension savings shouldn’t be rushed. Please make sure that you fully understand your options – and that you factor in everything that’s relevant to your choice.

In particular, the tax implications of each option should be understood. Make sure you also think about your attitude to risk: for example, is a guaranteed income important or are you willing to take some investment risk?

You may also want to look at the above defined contribution pension options at the same time as establishing how much income you’ll get from other sources. These could include any defined benefit pension schemes you are enrolled in, the State Pensions, savings, investments and so on. Your property wealth may also come into play as a way to raise money, for example through downsizing or equity release.

Where to get more helpYou can get professional pensions advice when deciding what to do with your pension savings. There is also a free guidance service available for anyone over 50 from Pension Wise, the government-backed service that’s provided by MoneyHelper.

David Prior

David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.