You can currently access your pension pot at any time once you turn 55. This gives you the option to take early retirement. Or you can start to take pension even if you're still working. For example, to top up your income so you can work fewer hours – although this could affect the amount of tax you pay.
There are a lot of rules around how you use your pension savings, to make sure they last as long as possible.
Free and impartial government guidance about retirement options is available at PensionWise.
We can't provide personalised advice on what you should or shouldn't do with your pension savings, but there are some common options you might like to consider.
1. Take a flexible income
Once you turn 55, you'll have the option to take a regular, flexible income from your pension - taking out money to cover bills and living expenses at regular intervals, and leaving the rest of your savings invested so it can continue to grow.
Taking a flexible income in this way can affect your eligibility for some state benefits – although it won't affect your State Pension. It will also limit the amount you can pay into other pension schemes to £4,000 a year. If you go over this limit, you'll have to pay an extra tax charge.
If you decide to use your pension pot to take a flexible income, you can also take lump sum of up to 25% tax free. The rest will of your pension will be liable for income tax.
How to take a flexible income from your Smart Pension
To take a flexible income, you'll have to enter a process called "drawdown". We don't provide drawdown directly from our scheme at the moment, but are hoping to have a drawdown retirement product available in the near future. At the moment, if you want to take a regular income from your pension savings, you'll need to choose a suitable provider and transfer your pension to them.
If your pension pot is less than £10,000, you could be eligible to take all your money at once. This is known as "trivial commutation". You can only apply for trivial commutation for three pension pots.
If you want to apply for trivial commutation on a pension pot under £10,000, please complete our retirement options application form. Send the form and relevant documents to the address provided, and we can start this process. If you need help completing and returning this application form to us, read our step by step guide.
2. Take a guaranteed income
You can use your pension savings to buy an annuity. This is a type of insurance policy which will provide you with a guaranteed, regular income – either for a given period, or the rest of your life.
The amount of guaranteed monthly income you get will depend on:
- the size of your pension pot
- how long you want to receive this guaranteed income
- whether you want the annuity to pay out to someone else after you die
- whether you choose an "inflation proof" annuity, which increases each year
- some health and lifestyle factors
How to buy an annuity with your Smart Pension
We don't provide annuities at Smart Pension. If you'd like to buy one, you can transfer your funds to a specialist annuity provider.
3. Do nothing or increase your contributions
You don't have to do anything with your pension just because you've turned 55. Many people keep working full time until they're ready to retire or reduce their hours, and continue to contribute to their pension in this time. Some even increase their contributions to boost their pension savings in their last few years of working life.
- Find out how to increase your contributions.
Whatever you decide to do with your pension, think carefully before you make any decisions. You can seek advice from a financial adviser, using a service such as unbiased.co.uk. The Pensions Advisory Service and PensionWise – part of the Money and Pension service – have a lot of useful information to help you turn your pension pot into retirement income.