Planning for retirement

On 6 April 2015, the rules around pensions became much more flexible, offering far greater freedom in a number of key areas that affect the way you can benefit from your pension savings.

Accessing your pension

You can now leave your funds entirely untouched, take out the whole amount, or take your funds out in stages to suit your needs. There are also new ways of taking benefits, and for the first time ever it’s possible for you to take out all of your pension fund in one go, without having to worry about annual income limits.

If you'd like to know more, take a look at our benefits guide.


There are various hugely important points that you will need to consider when deciding how and when to access your pension. For example, you must understand how much tax you will pay on withdrawals, that any funds withdrawn will lose a number of tax advantages and that you may have to pay charges if you reinvest withdrawals elsewhere. It is also important to consider the impact that any withdrawals will have on the sustainability of your retirement income into the future. Before making any decisions you must consider all of these points; your adviser can help guide you through this process.

Passing your pension on

The rules on paying death benefits out as a pension have changed too. In the past only people who met the legislative definition of a ‘dependant’ (typically spouses, civil partners and children under 23) could receive death benefits as a pension. Now though this more tax-efficient option is open to a much wider range of beneficiaries (referred to as ‘nominees’ and ’successors’).

Reducing the tax bill for beneficiaries

The way death benefits are taxed has also changed. If you die after the age of 75, the death benefits will be taxed at your beneficiaries’ highest rate of Income Tax. This is more generous than under the previous rules, where lump sums were taxed at a flat rate of 55%.

If you die before the age of 75, your beneficiaries can receive death benefits entirely tax-free, whether in the form of a lump sum or a pension. Again, for many this will be more generous than under the old rules, where the rate of 55% applied to some lump sums.

In either case, the funds remain outside of your estate, meaning that (in most cases) they will not be subject to Inheritance Tax.

Taking benefits for the first time?

Whether you are transferring one large pension or consolidating lots of smaller pensions, a SIPP gives you the flexibility to take benefits in different ways. With any of the following options you can use as much or as little of your SIPP as you like to provide you with the benefits, meaning you can phase the amount you withdraw over several years.

  • Tax-free cash and income drawdown. Take 25% tax-free and place the remainder into ‘flexi-access drawdown’. The income is taxable, but there are no limits on how much income you take. The underlying investments in your SIPP can remain exactly as they are, but please note their value can go down as well as up.
  • Tax-free cash and an annuity. Take 25% tax-free and transfer the remainder to an insurance company in order to purchase an annuity. This will provide you with a guaranteed income stream for life. As with income drawdown, the income is taxable.
  • Uncrystallised Funds Pension Lump Sum (UFPLS). This option became available from 6 April 2015. It allows you to use all of your SIPP, or just a part of it, to generate a single lump sum, 25% of which is tax-free, 75% taxed as earned income.

Already taken benefits from another pension scheme?

If you have taken tax-free cash under another pension scheme, you may already have funds in income drawdown. If you took these benefits before 6 April 2015, your income drawdown may be in the form of ‘capped drawdown’ and you have a maximum annual income limit.

It is possible to transfer capped drawdown funds into a SIPP. These funds will remain in capped drawdown on transfer, but if you want to you can opt to convert them to flexi-access drawdown, either at the outset or at any point in future.

If you took benefits on or after 6 April 2015, you may already have funds in flexi-access drawdown. It is possible to transfer these funds as well, and they will remain in flexi-access drawdown on transfer to your SIPP.

If you have taken benefits in the form of a lifetime annuity or from a final salary scheme, those funds cannot be transferred into a SIPP.

Restrictions on contributions

The Annual Allowance places a restriction on the amount you can contribute to pension schemes without incurring a tax charge. It is currently set at £40,000 per annum, although you can use unused allowances from the previous three tax years. Higher earners may have an annual allowance of less than £40,000.

Please note that if you take any income under flexi-access drawdown, or if you take a UFPLS, the amount you can pay to your SIPP and other money purchase pensions will reduce to £4,000. This is known as the Money Purchase Annual Allowance. If you’re building up benefits in a defined benefit pension scheme you will still be able to use unused allowance from previous tax years in respect of those funds. Once the reduced annual allowance has been triggered you won’t be able to pay contributions to your SIPP to sweep up unused allowances from earlier tax years.

If your funds are in capped drawdown and you take income, it will not trigger the reduction in the annual allowance as long as you remain within your maximum income limit. If you take tax-free cash and take no income under flexi-access drawdown, again it will not trigger the reduction.

Find out more

To help you understand more about the options outlined above, we have produced a detailed pension freedoms guide which explains all the changes and their implications. These rules are far-reaching, so it is important to consult your adviser about the various options open to you before making any decisions.

Guidance on pension benefit options is also available from the Government-backed ‘Pension Wise’ service. This is a free and impartial service available online, over the phone from The Pensions Advisory Service, and face-to-face from Citizens Advice. Whilst this may be valuable for certain individuals, the Pension Wise service is not intended to be a substitute for full financial advice. More information can be found at