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How to manage your pension pot in retirement

From taking a tax-free lump sum to drawing an income, there are several ways to access your pension.

Here’s a guide to help you understand your options and make informed decisions.

Your pension options at a glance

1. Leave your pension untouched until you need it

You can access your pension from age 55 (rising to 57 in 2028). However, there’s no need to take it if you’re not ready. If you want to keep your money invested, simply let your pension provider know. 

Benefits:

  • Your pension pot has more time to potentially grow
  • Delaying withdrawals may reduce the risk of running out of money later in retirement

Things to consider:

  • Investments can go down as well as up, and you could get back less than you put in
  • Your pension provider may charge ongoing management fees

2. Take lump sums from your pension

Withdraw money in smaller lump sums as needed, leaving the rest invested. 

Benefits:

  • You have money coming in to help you manage your outgoings
  • Your remaining pension pot can benefit from potential growth

Things to consider:

  • Investments can go down as well as up, and you could get back less than you put in
  • Not all providers offer this option, so it’s important to check your policy
  • Some providers may charge fees or limit withdrawals

3. Draw an income from your pension

What is pension drawdown?

Pension drawdown (also called income drawdown) allows you to withdraw income while keeping the rest of your pension invested. Typically, 25% of your pot is tax-free, with the remaining 75% taxed as income.

Benefits:

  • Flexibility in how much and when you withdraw
  • Remaining pot can potentially grow and be passed to loved ones when you die
  • You can switch to another option if drawdown isn’t right for you

Things to consider:

  • Investments can go down as well as up, and you could get back less than you put in
  • Poor investment performance could make your income run out sooner than expected
  • Admin or management fees may apply

4. Buy an annuity for a guaranteed income

What is an annuity?

An annuity is a way to turn part of your retirement savings into a guaranteed income for the rest of your life or for a fixed term of your choice. 

Benefits:

  • Guaranteed income for life, with options to pass it to loved ones when you die
  • Choose a fixed income or one that rises each year to help protect against inflation (the rate at which the prices of goods and services increase)
  • Choose how often you receive payments, such as monthly or yearly

Things to consider:

  • Income depends on annuity rates, influenced by factors like age, health, and interest rates
  • After the initial cancellation period (usually 30 days), you can’t reverse your decision
  • Shop around for the best deal to make sure it's right for your situation

Find out what Legal & General (L&G) can offer

Through L&G, you can:

  • Learn more about how annuities work
  • Use their annuity calculator to get a personalised quote
  • Apply online

Find out more about pension annuities.

By proceeding with this annuity journey, you acknowledge that any decision you make is your own and that HSBC has not provided any advice that an annuity is suitable for your needs. HSBC UK will receive a commission payment for any completed application. This will be fully disclosed to you as part of the application process with L&G.

5. Take your entire pension in one go

You can withdraw your full pension pot as a lump sum, with 25% tax-free and the remaining 75% taxed as income. 

Your pension pot is the total amount of savings you and your employer (if employed) have built up over time, to fund your retirement. This could be through private pensions, workplace pensions or both. It doesn’t include your state pension or any defined benefit pensions you may have.

Benefits:

  • Immediate access to your money
  • Freedom to use the funds as you wish

Things to consider:

  • You may pay more tax and risk running out of money later
  • Check for fees or charges in your pension policy
  • It’s important to seek guidance or professional advice before making this decision

6. Mix and match options to suit your needs

You don’t need to stick to just one option. Depending on the size of your pension pot, you could:

  • Buy an annuity for guaranteed income
  • Keep some funds invested for flexibility or future needs

This strategy lets you balance security and flexibility, creating a retirement plan that fits your lifestyle.

Remember: everyone’s circumstances are different. It’s important to consider each option carefully, including the amount of tax you would pay and any fees or limitations in your policy. 

Will taking money from your pension affect your benefits?

Yes, withdrawing money could affect means-tested benefits like pension credit. It’s important to understand how your income or capital might affect eligibility.

Do you pay tax on your pension?

Yes, your pension is considered taxable income. However, only if your total annual income is higher than the standard UK personal allowance (£12,570 until the 2030 to 2031 tax year). You stop paying National Insurance when you reach state pension age, and it isn’t due on any pension income before then.

Help and support

Managing your pension pot can feel overwhelming, but you don’t have to do it alone.

If you’re aged 50 or over, you can get free, impartial guidance from Pension Wise – a government-backed service from MoneyHelper to help you understand your retirement options.

If you feel you'd benefit from financial advice, we can help. You'll need to have £100,000 in investments and savings to qualify. Fees and other eligibility criteria apply.

 

This article was last updated: 25/03/2026, 07:26

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