This gives you flexible access to your pension savings to take money out, and it’s one of the ways you can access your pension savings after you’ve reached your normal minimum pension age. It’s also known as income drawdown.
You can normally take up to a 25% tax-free lump sum when you access your benefits (limited to a lifetime maximum of £268,275 unless you hold protection for a higher amount). You can either take your tax-free lump sum in chunks or all at once. Under HMRC rules, for every £1 of tax-free lump sum you take, £3 will be moved to a flexi-access drawdown account that we’ll set up for you. Once you’ve money set aside in flexi-access drawdown, if you’d like to you can take lump sum withdrawals or set up a regular monthly income from this account, while leaving the rest of your money invested to grow further. This could be especially handy if you’re only partially retiring.
How does it work?
- You can normally take up to a 25% tax-free lump sum when you access your benefits (limited to a lifetime maximum of £268,275 unless you hold protection for a higher amount). Under HMRC rules, for every £1 you take as tax-free lump sum, £3 is moved to a flexi-access drawdown account that we set up for you. Then each time you take money out of that account you may pay tax on the full amount.
- As long as your money remains invested, the value might rise and fall, depending on how your investments perform. Any money taken is added to your income for the year and taxed in the normal way.
- Once you’ve received the first payment from your flexi-access drawdown account, this can trigger a lower annual allowance of £10,000. This is known as a money purchase annual allowance (MPAA).
- For lump sum withdrawals, you need to take at least £200 each time. For a regular income, you need to have £1,500 to first set this up and then you must take at least £50 per month.
- There’s a risk you could run out of money to live on in your retirement, if you take too much money out early on. But you could use any remaining money to transfer to a guaranteed income (an annuity) later on.
More about your different options for taking your pension savings »
We’re not authorised to give you advice, but you can read more about your guidance and advice options on our website.