You can normally take pension benefits as:

• A tax-free lump sum together with a drawdown pension or an annuity. This is normally up to 25% of the value of the benefits you’re taking at the time, but may be more or less than this depending on your circumstances. 
• A flexi-access drawdown pension.
• An annuity.
• A cash lump sum known as an uncrystallised funds pension lump sum.
• A combination of the above.

You can normally start taking pension benefits from the age of 55 (increasing to age 57 on 6 April 2028). You may be able to take pension benefits earlier than this if you have a protected pension age or if you’re in ill health.

All these benefits are subject to any lump sum allowance and lump sum and death benefit allowance restrictions. This information is based on our understanding of current taxation law and HMRC practice, which may change.

Flexi-access drawdown pension: A drawdown pension lets you take income from your pension fund while it’s still invested. Drawdown will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value. The level of income you take will need to be reviewed if the fund becomes too small - this is more likely the higher the level of income you take.

An annuity: An annuity gives you a regular retirement income for the rest of your life. You buy an annuity with the balance of your pension savings, after you’ve taken any tax-free cash. You can buy an annuity on the open market with the money you've saved, but you don’t have to. As annuity rates can change substantially and rapidly, there is no guarantee that when you do purchase an annuity the rates will be favourable. This could mean that your pension thereafter may be less than you hoped for.

You don't need to buy an annuity from the provider you saved with. Aegon don't sell annuities, however you can buy an annuity from a range of providers on the open market. It's important to shop around, taking account of your personal circumstances to get the best deal.

An uncrystallised funds pension lump sum: An uncrystallised funds pension lump sum (UFPLS) is an ad hoc lump sum drawn from an uncrystallised defined contribution pension pot. Typically, 25% of the lump sum will be tax free with the remainder being subject to income tax. You can find out more or apply for an UFPLS at Your Retirement Planner. The level of any tax depends on your individual circumstances.

For free and impartial guidance to help you understand what you can do with your pension pot visit Pension Wise, a service from MoneyHelper which is backed by the government. If you're over age 50, you can arrange an appointment with Pension Wise, this can be face-to-face or by telephone. 

If you're unsure which retirement option is best for you, we recommend seeking advice from a financial adviser. There may be a charge for this.