Taking your pension pot a bit at a time
There are 2 ways of taking your pension pot a bit at a time. With both options you’ll usually receive up to 25% of your pension as a tax-free lump sum with the remaining amount either being paid to you at the same time as your taxed sum or being invested in a flexi-access drawdown account. You’ll need to decide which option is best for you.
Why would someone choose to take
their money a bit at a time?
These options will work differently for different people, depending on a whole range of circumstances and factors. That’s why we always recommend you get guidance and advice as well as doing your own research. But generally, tax is a major deciding factor when choosing which way you want to take your pension pot.
The income tax you pay is calculated on a yearly basis. So it’s important to consider whether adding the money you take from your pension to your other income for a certain year could push you into a higher tax band. If this happens, it could mean you pay more tax than usual.
By only taking as much money as you need each year, you can plan your pension pot withdrawals so that you stay within a lower tax band, meaning you pay less in tax.
How to take your pension money
When you’ve considered your options and decided how you want to take your pension savings, you can request this quickly in your account.
2 ways to take it a bit at a time People's Pension
If you want to take your pension pot gradually with us, you’ll need at least £10,000 in your pot to get you started (or £2,000 if you’ve already taken some money). We offer two ways to do this.
Please remember that the money you take now will reduce the value of your pension in the future.
1. Take your tax-free lump sum up front
The first option is you can take your tax-free lump sum up front, in small chunks or in one go, with some or all your pension savings then being moved into a flexi-access drawdown account.
The key points to consider:
- You don’t need to take your whole pension pot at once.
- The money in your pension pot and flexi-access drawdown account will stay invested and so its value could go down or up over time.
- Once your pension savings have moved into your flexi-access drawdown account, you can withdraw this money by taking one or more lump sums or by setting up a regular monthly income.
- You can take one payment per tax month. For example, from 6 May to 5 June.
- Any lump sums or regular monthly income you take from your flexi-access drawdown account will be taxed as income and will trigger the money purchase annual allowance, but taking your tax-free lump sum won’t. This means you can continue to contribute into your pension pot and receive the maximum tax relief available to you.
How it works
For every £1 you take as a tax-free lump sum, £3 will be moved into a flexi-access drawdown account. Then, each time you take money out of that account, the full amount of each withdrawal will be subject to income tax.
Find out if taking your tax-free lump sum up front (flexi-access drawdown) is right for you
2. Spread your tax-free entitlement across all withdrawals
The second option is to spread your tax-free entitlement across all withdrawals and so part of every payment may be taxed as income. This option is known as taking a partial uncrystallised funds pension lump sums or UFPLS.
The key points to consider:
- You don’t need to take your whole pension pot at once.
- You can take one payment per tax month. For example, from 6 May to 5 June.
- Taking your money in this way will trigger your money purchase annual allowance. This will limit the amount you can contribute into your pension pot and receive tax relief on.
How it works
With this option, each time you take money from your pension pot, 25% of it is usually tax free and you may pay tax on the other 75% of each lump sum.
Different amounts can be taken each time with the remainder of your money staying invested, giving it a chance to grow.
Find out if spreading your tax-free entitlement across all withdrawals is right for you
Consider combining your pension savings
If you’ve got more than one pension – you might want to think about putting them all in one place so that they’re easier to manage. The amount you have in your pension pot affects which options you can take your money through. So by combining your pension savings into one, you could change the options available to you. It’s also important to compare the charges, features and services between the pension you want to transfer out of and the pension you want to transfer into – to make sure it’s the best option for you. Find out about our charge.
Should you combine your pensions before taking it a bit at a time?
If you want to take your pension pot a bit at a time with People’s Pension, you need to have more than £10,000 in your pot to get you started. So if you have less than £10,000 with us at the moment, you could increase this amount by transferring in any other pensions or topping up your pension with extra contributions.
Combining your pension savings with
People's Pension
You could transfer your other pensions into People’s Pension. It’ll be easier to keep track of them in one place and you could save money on charges too. If you’re unsure what’s right for you, it’s a good idea to consider getting advice. Otherwise, if you’re comfortable making financial decisions, all you need to do is give us the details of your other pensions (either online or by post) and we’ll do the rest.
What’s the difference?
Does People's Pension offer this option?
Yes
As long as you have more than £10,000 in your pension pot, or £2,000 if you’ve already taken money before.
Yes
As long as you have more than £10,000 in your pension pot, or £2,000 if you’ve already taken money before.
More about spreading your tax-free entitlement across all withdrawals with us.
Will I pay tax on the money I receive?
Will this option affect my tax relief if I want to continue saving into a pension?
Is the money guaranteed to last for the rest of my life?
Do I have any other choices?
Can I nominate someone to receive my money when I die through this option?
What are the risks?
How do I choose this option with People's Pension?
| All your options at retirement | Keep your money where it is | Take it all in one go | Take it a bit at a time | Buy a guaranteed income or 'annuity' |