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Your retirement options are changing

Retirement rules changed on 6 April 2016. The new rules, called ‘Pension Freedom', provide more flexibility and choice on how you can take your pension.

Read below to understand the changes and find out what to do next.

Remember, pension savings are designed to provide income for the rest of your life. If you decide to take advantage of the new flexibility and withdraw savings from your pension, you need to know how you will finance your retirement.

What’s changing and when?

Under the old rules, choices were very limited at retirement and most people simply bought an annuity 1, which provided a guaranteed income for the rest of their life.

The new rules mean that you now have full flexibility to take out as much of your pension as you like, at any time, from age 55.

Providing you are within the lifetime allowance 2 that now applies to pensions (£1.25m for 2015/16 and reducing to £1m from 6 April 2016), you can take 25% of your pension tax-free as a lump sum. Thereafter, if you take out more as a lump sum or income, you have to pay income tax on this amount, which could result in a hefty tax bill.

While you no longer have to buy an annuity or set up income drawdown with anything you leave in your pension, the reality is that most people will need a secure income in retirement that they can rely upon to top up their state pension. The range of options now available is vast and selecting what is appropriate will depend entirely on your individual circumstances – most people will use one or a combinations of the following options:

  • Take it all in one go – this could involve a substantial tax bill, with all the taxable income being taken in one year
  • Withdraw it gradually – you choose the period over which to draw your pension, paying the relevant tax due in each year
  • Withdraw up to 25% tax-free and leave the rest invested – this allows you to take a lump sum and have an income at a later date
  • Buy an annuity – the rules are being relaxed so that annuities are now optional. Its expected that new and innovative products will be available in the market

Our retirement income calculator can give you a better idea of how much you could be paid from your pension savings. Try it out to see what your retirement income could be under different options.

While these are the main changes to how incomes can be provided in retirement, there are other important changes that came into effect as part of the new rules.

It’s important that before you decide to use these new ways of drawing money out of a pension, you should either seek more detailed information or get independent financial advice about what is the right thing for you. We’ve included some links below that may help you do this.

It’s important to bear in mind that just as these rules are changing, like all tax rules, they can change again in the future. The value of favourable tax treatments to you will depend on your individual circumstances which can also change. We don’t offer tax advice so if you’re unsure, please seek it independently.

More information and next steps

Our retirement income calculator can give you a better idea of how much you could be paid from your pension savings. Try it out to see what your retirement income could be under different options.


To help you gain the right insight and guidance to assist you in making appropriate decisions, here are some sources of information you may like to consider.

Organisation Contact details What it provides
The Money Advice Service


0300 500 5000

  • Free and impartial money advice set up by the Government.
  • Advice and guides to help improve your finances
  • Tools and calculators to help you keep track and plan ahead
  • Support in person, over the phone and online
Pension Wise


  • A free and impartial government service that helps you understand your new pension options
  • ‘at retirement’ Supplied in conjunction with the Pensions Advisory Service & Citizens Advice Bureau
The Pensions Advisory Service


0300 123 1047

  • Free and impartial guidance to people in workplace savings plans (auto enrolment) and Personal pensions
  • ‘At retirement’ telephone consultations as part of Pension Wise
Citizens Advice Bureau


03444 111 444 (England)
03444 77 20 20 (Wales)

  • Free, confidential and impartial advice on financial matters
  • ‘At retirement’ Face to face meeting as part of Pension Wise


  • One-stop source of experienced, regulated financial advisers, covering pensions and retirement advice, auto enrolment and tax planning
  • Free Pensions health check
  • Discounted Advice & transaction

Pension Wise explained PDF 3

  • Which have produced a free guide explaining the questions you need to ask and what to make of the answers
Important information
1. An annuity is when you use all or part of your pension fund to buy a guaranteed income for the rest of your life. In return for a lump sum (the money saved in a pension pot), an annuity provider (insurance company) will provide an annual income for a defined period or the rest of your life.
2. Lifetime allowance represents the maximum value that all your pension savings. The current lifetime allowance is £1.25m. From 6 April 2016, this is due to reduce to £1m. If, when you start to draw money from your pension or when you die your total pension savings exceed this amount, the surplus will be taxed at 55%.
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