Most personal pensions set an age when you can start taking money from them. It’s not normally before 55. Contact your pension provider if you’re not sure when you can take your pension.
You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. This is limited to a maximum of 25% of your available lifetime allowance. For most individuals, the standard lifetime allowance applies. This is currently £1,073,100.
You’ll then have 6 months to start taking the remaining 75%, which you’ll usually pay tax on.
If you hold lifetime allowance protection, this may increase the amount of tax-free lump sum you can take from your pensions.
The options you have for taking the rest of your pension pot include:
- taking all or some of it as cash
- buying a product that gives you a guaranteed income (sometimes known as an ‘annuity’) for life
- investing it to get a regular, adjustable income (sometimes known as ‘flexi-access drawdown’)
Ask your pension provider which options they offer (they may not offer all of them). If you do not want to take any of their options, you can transfer your pension pot to a different provider.
Taxes and charges
Your pension provider will take off any tax you owe before you get money from your pension pot.
You might have to pay a higher rate of tax if you take large amounts from your pension pot. You could also owe extra tax at the end of the tax year.
Your pension provider might charge you for withdrawing cash from your pension pot - check with them about this.
Get regular payments from an annuity
You might be able to buy an annuity from an insurance company that gives you regular payments for life. You can ask your pension provider to pay for it out of your pension pot.
The amount you get can vary. It depends on how long the insurance company expects you to live and how many years they’ll have to pay you. When they calculate the amount they should take into account:
- your age and gender
- the size of your pension pot
- interest rates
- your health (sometimes)
There are different kinds of annuities. Some are for a fixed time (for example, payments for 10 years instead of your lifetime) and some continue paying your spouse or partner after you die.
You do not have to buy your annuity from your pension provider.
Invest the money in a drawdown fund
You may be able to ask your pension provider to invest your pension pot in a flexi-access drawdown fund.
From a flexi-access drawdown fund you can:
- make withdrawals
- buy a short-term annuity - this will give you regular payments for up to 5 years
- pay in - but you’ll paytax on contributions over the money purchase annual allowance
Keeping your capped drawdown fund
If you have a ‘capped drawdown’ fund and want to keep it, your money will stay invested.
You can keep withdrawing and paying in. Your pension provider sets a maximum amount you can take out every year. This limit will be reviewed every 3 years until you turn 75, then every year after that.
Withdraw cash from your pension pot
You may be able to take cash directly from your pension pot. You could:
When you cannot withdraw cash
You cannot take smaller cash sums if any of the following apply:
- you’ve already saved £1,073,100 in pension schemes over your lifetime (your lifetime allowance)
- you have some type of lifetime allowance protection
- you’re under 75, and the sums you want to withdraw are bigger than the amount of lifetime allowance you have left
FAQs
A personal pension is a type of defined contribution pension. You choose the provider and make arrangements for your contributions to be paid. Find out more on our guide Defined contribution pensions. As like other pension schemes, a personal pension offers a tax-efficient way to save for retirement.
Do private pensions still exist? ›
Traditional defined-benefit pension plans are vanishing from the retirement landscape, especially among private employers, but many still exist. Pension plans are funded by contributions from employers and occasionally from employees.
Is a personal pension the same as a 401k? ›
A pension is a retirement-savings plan, typically employer-funded, that gives you regular payments in retirement. A 401(k) is a workplace retirement plan that gives employees a tax break when they contribute. Tina Orem is an editor at NerdWallet.
How do I know if I have a personal pension? ›
Contact the Pension Tracing Service
It searches a database of more than 200,000 workplace and personal pension schemes to try to find the contact details you need. You can phone the Pension Tracing Service on 0800 731 0193 or use the link below to search their online directory for contact details.
What is a personal pension USA? ›
A personal pension is a private pension that you can set up for yourself, outside any workplace scheme. Open a personal pension plan and your contributions could be boosted by tax relief too.
What is the average pension payout per month? ›
According to the Social Security Administration, Social Security benefits make up about a third of the income of the elderly. In general, single people depend more heavily on Social Security checks than do married people. In 2023, the average monthly retirement income from Social Security is $1,827.
Why are pensions going away? ›
In reality, large corporations were lobbying Congress to shut down their pension plans because they were too expensive to administer, and the employer held all of the investment risk. Corporate America needed a way to reduce costs and transfer the risk from the company onto the employee.
Is it better to have a personal pension? ›
As like other pension schemes, a personal pension offers a tax-efficient way to save for retirement. The money paid into a personal pension scheme is invested to build up a pot of money for when you retire. You get tax relief on the contributions.
What is a good pension amount? ›
For a quick estimate, try the '50-70' rule. This suggests that you should aim for an annual income that is between 50 and 70 per cent of your working income.
Is pension better than Social Security? ›
Social Security pays a small death benefit, but pensions have no such feature. Some defined benefit pensions will distribute your funds to you as a lump sum. You can choose whether to take the lump sum or opt for the monthly benefit payments. You don't have this option with Social Security.
You can start taking money from most pensions from the age of 60 or 65. This is when a lot of people typically think about reducing their work hours and moving into retirement. You can often even start taking money from a workplace or personal pension from age 55 if you want to.
How much will I lose if I take my pension at 55? ›
For this reason, your employer is required to withhold 20 percent of the payout. In addition to paying income tax, you will owe an additional 10 percent penalty tax, if you take a lump-sum payout before age 59½.
Are private pensions safe? ›
Your workplace pension is protected whether the provider is your employer or a financial company. There are controls in place to minimise the risks to pensions.
How much is the average pension per month in USA? ›
The average monthly retirement income adjusted for inflation in 2023 is $4,381.25, according to a 2022 U.S. Census Bureau report. The average annual income for adults 65 and older in 2023 is $75,254 – or $83,085 when adjusted for inflation.
What is a work vs personal pension? ›
The main difference between arranging a personal or stakeholder pension yourself and joining one through your workplace is the amount of control you have over how the money you pay into your fund is invested. With a workplace scheme, the investment choices may be made for you by the provider.
What can a personal pension also be called? ›
Personal pensions are pensions that you arrange yourself. They're sometimes known as defined contribution or 'money purchase' pensions. You'll usually get a pension that's based on how much was paid in. Some employers offer personal pensions as workplace pensions.
Can I access my private pension now? ›
The short answer is, yes you can. There are lots of reasons you might want to access your pension savings before you stop working and you can do this with most personal pensions from age 55 (rising to 57 in 2028). But there are some important things to consider first.
Is Social Security a private pension? ›
Social Security is a government-guaranteed basic income for older Americans, funded through a special tax paid by employees and employers. For most retirees without a pension, Social Security will not be enough; other types of retirement savings, like a 401(k) or an IRA, are encouraged.
How many people have a private pension? ›
Chart 2 uses data from Tables 2.1 and 2.2 and shows the number of members contributing to personal pensions and the average contribution has been broadly stable between 2013 to 2014 and 2020 to 2021. The number of members decreased in 2020 to 2021 to 6.8 million and the average contribution increased to £1,700.
When did companies do away with pensions? ›
By the turn of the 20th century, many corporations began to grow and offer pensions. By 1960, nearly half of the private sector workforce had a pension. However, private sector pensions began to decline in the 1980s following a series of laws passed by the Reagan Administration.
