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Different ways to access your pension

Date: 04 November 2025

4 minute read

Choosing when to access your pension, and how to go about it, is an important decision. The options available to you will depend on what type of pension you have.

Most pensions are designed to pay out at your normal pension age (often age 60, 65, or the same as your State pension age). You might get less than expected if you take money out earlier than this. You can also choose to leave your pension invested until later than your normal pension age.

You can normally start taking money from your pension at age 55 (rising to 57 from 2028), unless you have an earlier protected minimum pension age. If you need to retire early because of serious ill health, you may be able to access it sooner.

Defined contribution pensions

A defined contribution pension helps you save for retirement. How much you get from the pension will depend on:

  • how much you pay into it
  • how the investments perform over time
  • fees and charges
  • when you take the money out

Your options are:

  • taking some or all of your pension as a cash lump sum
  • use your pension to buy an annuity (you can take a cash lump sum as well)
  • take money from your pension fund (pension drawdown) - there won't be any restrictions for how much you can take
  • a mix of these options

Cash lump sum

You can take your whole pension as cash. Alternatively, you can take smaller sums as cash as and when you want to.

25% of your total pension will be tax-free. Any money you take from the rest of it will be added to your other income for that year and taxed at the relevant income tax band.

Annuity

You can take some of your pension as a tax-free cash lump sum, and use the rest to buy an annuity. An annuity will pay you an annual income for the rest of your life, and you can choose from a range of different options to suit your requirements.

Note: Once an annuity is set up, you can’t usually change anything about it.

Pension drawdown

With pension drawdown, you can take an income from your pension, and leave the rest of the money invested.

There are no limits on how much you can take using pension drawdown – and you can still take 25% of the total pension pot tax-free.

Note: Check with your pension provider whether they can facilitate this – not all providers offer it.

A mix of options

You can use your pension to do more than one thing. For example, you could take some tax-free cash from your pension (and a pension income as well, if you want), and maybe choose to buy an annuity later.

Defined benefit pensions

A defined benefit pension will provide a retirement income based a) on your salary, and b) how many years you have been in the pension. The income will increase every year in line with inflation.

If you access the pension before you’ve reached the scheme’s Normal Pension Age (the age set by your scheme), your income will usually be lower than it would otherwise have been.

There are two ways you might take your entire pension as a lump sum:

  • If the total value of all your private pensions (not including the State Pension) is £30,000 or less, you can take the whole amount as cash. This must include your defined benefit pension and be paid within 12 months of the first payment.
  • If your defined benefit pension is worth £10,000 or less, you can take it as a lump sum even if your other pensions are worth more. You can do this for up to three personal pensions and any number of occupational pensions.

In both cases, 25% of the lump sum is tax-free and the rest is taxed as income.

A note on the Lump Sum Allowance and tax-free cash

When you access your pension, you can usually take up to 25% of your pension pot tax-free. This is subject to the Lump Sum Allowance, which limits the total tax-free cash you can receive across all your pensions.

As at the time of writing, the standard Lump Sum Allowance is £268,275. Some people may benefit from a higher allowance if they hold a Transitional Tax-Free Amount Certificate (TTFAC) – this confirms entitlement to a protected tax-free amount based on previous pension rules.

If you’ve already taken tax-free cash from other pensions, this counts towards your allowance. Once you reach the limit, any further lump sums will be taxed as income.

This material is not tax, legal or accounting advice and should not be relied on for tax, legal or accounting purposes. Quilter Cheviot Limited does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting adviser(s) before engaging in any transaction.

Tax treatment varies according to individual circumstances and is subject to change.

Approver: Quilter Cheviot Limited, 05 November 2025

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