Retirement income

After a lifetime of working and saving, retirement is your chance to relax, enjoy your freedom and make time to do what you want to do. Securing your retirement income is one of the most important decisions you’ll have to make.

What you choose to do with your pension savings is a big decision, so it’s important to get it right.

It might be a good idea to take financial advice. A financial adviser can look at your individual circumstances and give you specific recommendations based on your unique personal and financial situation.

Are you on track to have enough income in retirement?

As you approach retirement, think about whether the income from your pension, savings and any investments will be enough to give you the kind of lifestyle you want to lead.

Consider how much you will need to live on in retirement. If there’s a shortfall between the income you expect and the lifestyle you want to lead, review your savings to make sure they’re working as hard for you as you would like.

Your retirement income options

There are various options to secure an income as you approach retirement. If you have a defined contribution pension, you can take up to 25% of your pension pot as a tax free lump sum from your 55th birthday.

With the rest you can choose to buy a guaranteed income for life (typically buying a conventional annuity), keep it invested and make withdrawals (flexi-access drawdown) or withdraw it all as a lump sum (but there are important tax considerations for doing so).

Flexi-access Drawdown

You can take 25% of your fund as a tax free lump sum. The remainder of your pension pot is invested, and you can take regular or ad-hoc withdrawals, with the potential for your fund to benefit from investment growth.


The fact your pension fund is invested means its value can fall and rise, and if you take too much income you could erode the value of your fund, both of which could in turn reduce the amount of income you receive. Withdrawals are taxed as income.

Lifetime Annuity

An annuity is a contract between yourself and an insurer which once entered into, cannot usually be changed. A conventional lifetime annuity enables you to use some or all of your pension pot to buy a guaranteed income for the rest of your life.

Annuities can provide an income for you and your spouse/partner, and can be arranged to rise with inflation. They can also pay guaranteed sums over a fixed term, or offer increased payouts based on lifestyle factors. Income from an annuity is subject to income tax.

State Pension

Don’t forget the State Pension. The State Pension age is currently is 65 for men. For women, it will reach 65 by November 2018 and will then rise to 67 for both men and women by October 2028, before rising further in future years.


If you reached State Pension Age on or after 6 April 2016, the full State Pension is worth £155.65 a week. It can be higher if you have over a certain amount of Additional State Pension or you delay taking your State Pension.

 

Stock market-based investments are not like building society savings accounts as your capital is at risk and you may get back less than you invested. The value of your investments and any income from them may fall as well as rise. The tax treatment of ISAs may be subject to change in the future.

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