Retirement Benefits Explained

When you're ready to access your pension, you have several options. Here's what they are and how they work.

You can take up to 25% of your pension as a tax-free lump sum. For a £100,000 pension, that's £25,000 you can withdraw without paying any tax.

You can take this as a single lump sum, or take it in stages over time.

After your tax-free amount, you have several options for the rest:

1. Income drawdown (flexi-access drawdown)

Your pension stays invested and you withdraw money as income when you need it. You choose how much and when. The remaining pot stays invested and can grow (or fall). Withdrawals are taxed as income. This option offers flexibility but requires you to manage your money carefully to make sure it lasts.

2. Annuity

You use some or all of your pension to buy a guaranteed income for life from an insurance company. The income amount is fixed at purchase based on annuity rates at the time, your age, and any options you choose (e.g., payments continuing to a spouse). This option offers security and predictability, but once you've bought an annuity, the decision is irreversible.

3. Uncrystallised Funds Pension Lump Sum (UFPLS)

You take lump sums directly from your pension as and when you need them. Each lump sum is 25% tax-free and 75% taxed as income. This can be useful for ad-hoc withdrawals but be aware it will trigger the MPAA.

4. Combination

You don't have to choose just one option. Many people take their tax-free lump sum and use drawdown for flexibility, while buying a small annuity to cover essential expenses.

Chest is focused on helping you build your pension during your working life. When you're ready to access your pension, we'll provide information on your options. You may choose to transfer to a provider that specialises in retirement products, or take your benefits through Chest if available.

Deciding how to access your pension is one of the most important financial decisions you'll make. We recommend seeking guidance from Pension Wise (a free government service) or speaking to a financial adviser.

If you have questions about retirement benefits, contact us at hello@joinchest.com.