This guide is to help you understand the different ways you can take your money out of now:pensions and what this could mean for you.
Before you start
Think about what you want out of your retirement
What do you want your retirement to be like? It’s important to think carefully about this because when you retire, and the choices you make when you retire, affect how much money you’ll have. Here are some of the things you’ll need to think about.
- What pension savings have you got, and when can you take them? This includes any other workplace or personal pensions you have, as well as your now:pensions savings.
- Remember your State Pension, which you can take at your State Pension age. Check your State Pension age.
- How much money will you need to live on, now and in the future? As a starting point, the Retirement Living Standards suggest £13,400 a year as the minimum, £31,700 a year as moderate and £43,900 a year as a comfortable standard for a single person who lives outside London. These amounts include State Pension.
- Is retiring now a good choice for you?
- Do you want to retire gradually by reducing your working hours, or retire all at once?
- How long do you think you’ll be retired for? It may be longer than you think. According to the Office for National Statistics a woman aged 65 can expect to live, on average, about 22 years, and a man about 19½ years.
- How would taking your pension savings affect how much tax you pay and any income-related State benefits you get?
Get free guidance from Pension Wise
You can get free and impartial guidance from Pension Wise, a service from government-backed MoneyHelper. It’s designed to help you understand the choices you have for taking your pension savings as retirement income.
Pension Wise can explain:
- how each retirement income option works
- what tax you could pay
- how to look out for scams.
To take Pension Wise guidance, you make an appointment for a call with a pension expert. Calls last about an hour on average. After your appointment, you’ll get:
- a summary of your retirement income options and the next steps you can take
- personalised information based on your situation
- details of where you can get further support.
You’ll be asked if you’ve taken Pension Wise guidance as part of taking your money out of now:pensions. We recommend you take it.
- Book your appointment directly on the MoneyHelper website.
- Book by phone on 0800 138 3944.
- Or, we can book your Pension Wise appointment for you. Ask us on webchat.
Think about taking regulated financial advice
Pension Wise will give you guidance, but it can’t give advice that’s tailored to you or tell you what you should choose. To get this kind of personalised advice, you need to take regulated financial advice from an adviser who’s regulated by the Financial Conduct Authority (FCA).
The government-backed MoneyHelper website has a guide to choosing a financial adviser and a directory of advisers who can give regulated financial advice on pensions.
The Personal Finance Society (PFS) has a What we do for the public section, including a directory you can filter to find advisers that specialise in giving regulated financial advice about retirement planning.
You usually have to pay for regulated financial advice, so remember to ask your adviser about their fees.
You should check the qualifications of any regulated financial adviser you’re thinking of using. They must be qualified to Level 4 (or above) of the Qualifications and Credit Framework and have an up-to-date Statement of Professional Standing.
You should also check they’re on the FCA’s official register.
Keep your savings safe from scams
Pension scams are increasing. Every day criminals find more sophisticated ways to con pension savers out of their money.
Scammers often start by offering a ‘pension review’ or a ‘one-off investment opportunity’. Eventually, this ‘offer’ will depend on you transferring your pension savings, supposedly to another pension scheme but in reality, straight into the scammers’ pockets. You could lose all your pension savings. You could also find yourself with a huge tax bill.
Things to watch out for
- Any contact about your pension that comes out of the blue, even if the person claims to be from your bank or a government department, or a friend of someone you know.
- Claims that you can get at your pension savings before age 55 without paying large amounts of tax. You can’t.
- Website promotions, phone calls, text messages, emails or adverts encouraging you to transfer your pension savings to get cash or a loan.
- Offers of ‘one-off’, ‘unique’ or ‘time-limited’ investment opportunities with high fees and unusual-sounding investments, especially if they involve transferring money abroad.
- Anyone trying to rush you into a decision – sending documents to sign while a courier waits to collect them, for example.
How to avoid and report scams
- Don’t sign anything or transfer money without speaking to MoneyHelper on 0800 011 3797.
- If you think you’ve already become the victim of a scam, call Report Fraud on 0300 123 2040.
- Check who you’re dealing with before changing your pension arrangements. Check the Financial Conduct Authority website or call 0800 111 6768 to see if the firm or person you’re dealing with is authorised by the FCA.
- Find out more about pension scams at MoneyHelper or The Pension Regulator.
Options for taking your money out of now:pensions
Check your age
The lowest age you can usually start turning your pension savings into retirement income is currently 55. It goes up to 57 on 6 April 2028.
You can only take pension savings earlier than this if you qualify on grounds of ill health.
Take all your account as cash
You can take all your now:pensions account as cash.
Usually a quarter (25%) of this will be tax free. The rest will be taxed at your highest rate of income tax, as part of your income for that tax year (April to April). It’s worth keeping an eye on how much income you’ll get in that tax year, in case taking the cash pushes you into a higher tax bracket.
There’s one exception. If you qualify for serious ill health – this means a medical professional has agreed you have less than a year to live – you can usually take all your pension savings as tax-free cash.
Take cash in chunks
You can take cash in chunks until:
- your money runs out, or
- you choose to do something else with it.
Usually a quarter (25%) of each chunk will be tax free and three-quarters will be taxable.
The rest will be taxed at your highest rate of income tax as part of your income for that tax year. It’s worth keeping an eye on how much income you’ll get in that tax year, in case taking the cash pushes you into a higher tax bracket.
To take cash in chunks you must:
- have at least £1,510 in your now:pensions account
- take at least £10 in each chunk and
- leave at least £1,500 in your account.
You can only ask for one chunk of cash at a time, and only once a calendar month.
You and your workplace can carry on paying in to your now:pensions account. But remember:
- the money purchase annual allowance now affects you (see Mind the allowance below)
- your savings stay invested, so they could grow – but they could go down in value too
- you can’t pay tax-free cash back in to your pension savings.
See how long your cash could last with our retirement planner
If you’re thinking of taking cash in chunks, you can use the retirement planner to see how long your money could last. Log in to now:u and go to Plan my retirement.
You can play around with different amounts of cash and different retirement ages. For example, you can see if your money could last until you start to get your State Pension.
Check the tax
We’ll work out the income tax and pay it to HM Revenue & Customs (HMRC) before we pay your cash. We may not take the right amount of tax, as we don’t know about any other income you get.
After the end of the tax year, on the next 5 April, HMRC will check if you’ve paid the right amount of tax. If not, they’ll contact you.
If you think you’ve paid too much tax, you don’t need to wait until after the end of the tax year to claim it back. Click here and follow the steps to find the form you need to fill in.
Mind the allowances
The money purchase annual allowance
If you take all or part of your savings as cash, the money purchase annual allowance will affect you (unless your savings with us are worth £10,000 or less). This is the total amount you and your workplace can pay in to all your pensions in a tax year, without having to pay tax on the money you pay in. It’s currently £10,000 a year.
This allowance applies to all the pensions you have with us and any other pension providers. It applies to workplace pensions and to pensions you set up yourself. If you go over it, you’ll have to pay tax on the amount over the allowance.
There are other ways to trigger the money purchase annual allowance, such as taking flexible income. See Take flexible income (‘drawdown’) for more about this.
You’ll need to tell any other pensions you pay in to, now or in future, that the money purchase annual allowance affects you. We’ll give you a certificate to send to your other pension providers. You must send this within 90 days of getting it.
The annual allowance
The money purchase annual allowance is a lot lower than the standard annual allowance for the amount that can be added tax-free to your pension savings. This is currently £60,000 a year for most people.
The lump sum allowance
The amount of tax-free cash you can have is limited by the lump sum allowance. This is £268,275 for the April 2025 to April 2026 tax year. If the amount of cash you want to take means your tax-free cash will be higher than this, you’ll have to pay tax on the amount over the allowance.
Pension savings worth £10,000 or less
If all your pension savings in now:pensions are worth £10,000 or less, you can take them as cash all at once without being affected by the money purchase annual allowance. As with all cash payments, only a quarter (25%) of this amount will be tax free.
Risks with taking cash
- Don’t underestimate your life expectancy. On average, people aged 55 today can expect to live into their mid-to-late 80s. You’ll need to think about how long your money needs to last when you’re deciding how much cash to take.
- Three-quarters of the cash you take will be taxable. Depending on your circumstances, taking this cash could put you into a higher tax bracket for the year. This means you could pay more income tax than you expected. You’ll need to check how taking the money will affect the tax you have to pay.
- If you get income-related State benefits such as Universal Credit, taking cash could affect the amount of benefits you get.
- If you have debts, taking cash could affect any repayment plans you’ve agreed, or mean the people you owe money to can claim the cash. So it’s best to check what taking money from your pension savings could mean for you. Find out more at Citizens Advice or MoneyHelper.
- Taking some or all your pension savings as cash means less to live on in the future and could mean you won’t be able to buy an income for life (annuity).
- If you plan to invest your cash elsewhere, make sure you understand what the charges are.
Reasons for choosing cash
You might choose to take all your now:pensions savings as cash if:
- they’re only a small amount
- you’ll get retirement income from other places, such as other workplace or personal pensions or your State Pension.
You might take cash in chunks if:
- you want to keep your options open
- you only need a small amount of cash now
- you’ll get retirement income from other places, such as other workplace or personal pensions or your State Pension.
Buy an income for life (annuity)
You buy a policy from an insurance company that pays a guaranteed income for the rest of your life. The policy is called an annuity. You’ll be taxed on the income from your annuity in the same way as any other income.
now:pensions doesn’t currently offer annuities. To take this option you’ll need to transfer your savings out of now:pensions and to an insurance company that offers the type of annuity you want.
See Transferring pensions for more about this.
Tax-free cash
You can usually take up to a quarter (25%) of your pension savings as tax-free cash, if you want to, before you transfer out the rest to buy your annuity. You’ll see this option in now:u.
How much income will you get?
This depends on a lot of things including: the total amount of your pension savings, your age, whether you decide to take any tax-free cash, where you live and your health. It also depends on what type of annuity you choose.
Different types of annuity
There’s no standard annuity. Every annuity provider offers different choices and there’s a LOT of choice. These are just some of the choices.
Level income, no increases
You can choose a level annuity that doesn’t increase every year . This can give you a higher starting income but means your income won’t increase in future.
Increases
If you’re worried about inflation affecting the amount of your income in future, you can choose an annuity that increases each year. You can choose increases in line with inflation – with or without an upper limit – or fixed increases, such as 3% a year. Different providers will offer different increases. Choosing increases will affect the cost of your annuity and make your starting income smaller. The higher the increases, the smaller your starting income will be.
Income protection
One of the risks of an annuity is that if you set one up and then die shortly afterwards, the income stops with nothing left over. There are ways to protect against this, but they could make your starting income smaller.
Dependant’s income
An annuity just for you is called a single life annuity. But you can choose a joint life annuity that starts paying income to a partner or dependant if you die before they do. This is usually less, often half (50%), the income you were getting. You might be able to choose a different amount, depending on what various providers offer.
Some providers offer a nominee annuity. This is a single life annuity, but you can name someone to receive an income after you die. You can name anyone – they don’t have to be related to you or dependent on you.
Choosing a dependant’s income will affect the cost of your annuity and make your starting income smaller.
Guarantee period
You can choose an annuity that’s guaranteed to pay out for a certain length of time – say, five or 10 years – even if you die before that time is up. Choosing this option will affect the cost of your annuity and make your starting income smaller.
Value protection
You can protect part of all the cost of buying your annuity to be paid to your dependants after you die. They get the money less the amount you’ve already received. Again, choosing this option will affect the cost of your annuity and make your starting income smaller.
Ill-health annuities
You might get a higher income if you have health issues or smoke. You can ask annuity providers for a health and lifestyle questionnaire to see if there’s anything that affects how much income you can get.
Short-term and fixed-term annuities
You can buy annuities that pay out for a fixed time. Depending on the annuity, they may pay you some money back at the end. But this type of annuity is complicated and you’ll need to take financial advice if you want to buy one. Buying this kind of annuity can also trigger the money purchase annual allowance.
Shopping around
Different annuity providers offer different prices and choices. It’s a good idea to shop around, explore different options and compare what several providers offer before making your choice. In the long term this could make a big difference to how much you get.
You can contact annuity providers directly or ask a regulated financial adviser to help you.
Risks with buying an income for life
- Annuities can be expensive, especially if you choose extras like increases or a pension for a dependant. The amount of income you’ll get from your annuity could be less than you expect.
- Level annuities, where the income stays the same for life, start higher than annuities with increases. But inflation could reduce their buying power in future.
- You can’t change your annuity once you’ve bought it.
- Annuity income stops when you die, unless you’ve chosen some sort of protection such as an income for a dependant or a guarantee period.
- If your annuity includes an income for a dependant, it stops when your dependant dies.
Reasons for choosing an income for life
- You want the security of a guaranteed income.
- You expect to live a long time.
- You don’t want to run out of money.
- You’re not worried about passing money on to dependants.
Take flexible income (‘drawdown’)
Leave your pension savings invested and take income out when you want it.
You pay income tax on the money you take out in a similar way to other income. You could limit the amount of tax you pay by being careful about how much you take out each year.
now:pensions doesn’t currently offer flexible income. To take this option you’ll need to transfer your savings out of now:pensions and into a flexi-access drawdown arrangement.
Tax-free cash
You can take up to a quarter (25%) of your pension savings as tax-free cash, if you want to. You can take it all at once before you transfer out. Or, you can do phased drawdown where you take your tax-free cash in stages. You may want to think about asking a regulated financial adviser to help you with this.
Get help with choosing
There’s a huge amount of choice with flexible income. Different providers will have different management charges and terms and conditions. You’ll also need to choose investments, which come with their own charges.
Because there’s so much choice, it’s a good idea to get a regulated financial adviser to help you.
How much income will you get?
It’s difficult to say. It depends on the total amount of your pension savings, when you start taking them as flexible income and how much you take out at a time.
But it also depends on which provider you choose and what their charges are.
And some things are impossible to work out, like how your investments will do in the future and how long you will live.
A regulated financial adviser will be able to help you work out a sustainable amount of income to take.
You can change your mind in future
You don’t have to stick with flexible income for the rest of your life. If you change your mind in future and decide you want to buy an annuity to give you an income for life, you can do this.
Risks with flexible income
- You’ll have total responsibility for managing your money, including how much tax you pay.
- You’ll need to keep investing your pension savings. The value of investments can go down as well as up.
- You’ll need to think about how long you’ll need the money. There’s no guarantee your money will last your lifetime.
- You’ll need to check when other income, like your State Pension, will become available – so you don’t run out of money altogether.
- If you want to carry on paying in to your pension savings, the money purchase annual allowance will affect you.
Reasons for choosing flexible income
- You want the flexibility of taking your money in the way you want.
- You want to be able to manage the amount of tax you pay.
- You think taking your money bit by bit will give you better value than buying an annuity.
- You want to keep your options open for the future.
Mixing your options
You’re not restricted to one way of taking your money as retirement income. You can combine two or more of the options or take them at different times.
For example, you could:
- take some cash and then carry on paying in to your pension savings
- use some of your pension savings to buy an annuity and leave the rest invested to take as flexible income, or
- take flexible income for a while and buy an annuity later.
If you’re thinking of mixing your options, it’s a good idea to talk to an FCA-regulated financial adviser.
Transferring pensions
Transferring out
At the moment, now:pensions doesn’t offer guaranteed income (annuity) or flexible income (drawdown). If you want to take either of these options, you’ll need to transfer your pension savings out of now:pensions to another pension provider that offers the options you want.
Go to Transferring your pension savings out of now:pensions to find out more.
