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.
You can normally take up to 25% tax-free cash 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 cash in chunks or all at once. Under HMRC rules, for every £1 of tax-free cash 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 ad-hoc withdrawals from your flexi-access drawdown account, while leaving the rest of your money invested to grow further. This could be especially handy if you’re only partially retiring. Also known as income drawdown.
How does it work?
- You can normally take up to 25% tax-free cash 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 cash, £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 of each lump sum.
- 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 flexi-access drawdown income 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).
- 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.