You don't have to take your pension all at once.
Depending on the options available to you, you can take a one-off lump sum, set up regular monthly withdrawals, or take money as and when you need it.
The important thing to remember is that taking money from your pension can have two consequences:
you may have Income Tax to pay; and
there will be less money left in your pension for later.
Depending on how you access your pension, the Money Purchase Annual Allowance (MPAA) may also apply. This can reduce the amount that can be paid into defined contribution pensions while benefiting from tax relief.
There are several ways pension withdrawals can be structured.
Flexi-access drawdown allows you to move some or all of your pension into drawdown.
You can normally take up to 25% of the amount you move into drawdown as tax-free cash, subject to your available tax-free allowances. The remainder stays invested.
You can then take taxable withdrawals from the drawdown fund when you need them.
These could be:
a one-off withdrawal;
occasional withdrawals; or
a regular monthly income.
You don't have to withdraw the whole amount.
UFPLS is another way of taking money directly from pension savings that you haven't previously accessed.
Normally, 25% of each UFPLS payment is tax-free and the remaining 75% is taxable as pension income, subject to your available allowances and individual circumstances.
For example, if you took a £4,000 UFPLS payment, this would normally consist of:
£1,000 tax-free
£3,000 taxable
Small Pension Pots
Different rules can apply when taking certain small pension pots in full.
If your pension qualifies under the small-pot rules, it may be possible to take the whole pot as a lump sum. Normally, 25% is tax-free and 75% is taxable.
A pension worth £10,000 or less may qualify for the small-pot rules, subject to the relevant conditions.
If you need a particular amount for a purchase or expense, you might consider a lump-sum withdrawal.
If you want your pension to help support your everyday income, regular monthly withdrawals might be more appropriate.
You can also combine the two — for example, taking some money now and regular withdrawals later.
The amount and timing of withdrawals can affect both the tax you pay and how long your remaining pension might last.
Before starting a withdrawal, you can experiment with different amounts using a withdrawal calculator.
It can illustrate:
the potential tax on a withdrawal;
approximately how much you might receive;
how much could remain invested; and
the potential effect on your retirement projection.
When you're ready, you can start the withdrawal process.
The value of your investments can fall as well as rise and is not guaranteed.
This guide provides general information, not financial or tax advice. Tax treatment depends on your individual circumstances and tax rules can change.