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What can you do with your pension when you retire?

There are many different ways to use your pension in retirement. Two of the most popular choices – after taking your 25% tax-free cash lump sum – are to buy an annuity or to take income drawdown. Here we look at what to consider when deciding which one might be best for you.

Published on 17 May 20183 minute read


With an annuity your income will last for your entire life, regardless of how long that may be or how the markets perform during this time. Many people appreciate this certainty, although you might not be protected against the effects of inflation.

Income drawdown leaves the money in your SIPP (or other pensions) invested. If your investments perform well, the value of your pension will rise. But investments can go down as well as up, so there is essentially no guaranteed level of income.


You can choose from a number of different annuities and decide which suits you best. You don’t have to cash in your whole pension to buy an annuity, meaning you can leave the rest of your pension invested to take as income drawdown or as lump sum withdrawals. Once you buy an annuity you can’t usually change your mind or vary your level of income, so you have to be sure it's the right option for you.

With income drawdown you get more control over your money, and you can take as much or as little of your pension as and when you want. You can vary the amount of income you take, for example to pay for a holiday or a new car, or – though less exciting – to manage tax. You can choose and manage your own investments, or leave them for the experts to handle to save you time.

Value for money

You make a one-off payment and receive a guaranteed income for life when you purchase an annuity, which can be extremely valuable if you live for many years into your retirement. Some annuities will pay you an income that rises in line with inflation, but others won't – which means your money may have less buying power in the future.

With income drawdown, most investment funds and pensions charge annual fees which can eat away at your investment returns. However, your investments could grow and you could potentially take a higher level of income than if you had an annuity (although your investments could also fall in value).

What happens when I die?

Usually there are no more payments from an annuity after death. However, some annuity providers offer you ways to protect your hard-earned savings, such as a joint-life annuity or a minimum guarantee period. Joint-life annuities provide you with an income for life which is then transferred to your chosen beneficiary when you die, paying them a regular income for the rest of their life. A minimum guarantee period guarantees your payments for a minimum amount of time, even if you die during this period. But it is worth bearing in mind that choosing one of these options could mean you are offered a lower level of income when in retirement.

If you use income drawdown to take your pension in retirement, your pension remains invested and can be passed on to your beneficiaries when you die. The money can be taken as a lump sum or as a regular income, but could be subject to tax.

Would you like to talk to a Coach about your pension?

If you know your pensions need some attention or you just want to make sure you’re doing all you can, why not book a free call with one of our Coaches.

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