It’s not always easy thinking through how to start taking money out of your pension.

There are a number of different options and the language around them is not always easy to follow. We’ve put together this article to help give you clarity and make the most of your retirement.

What are my options at retirement?

When you actually start to draw from a pension, you’re said to be in the decumulation phase because you’re taking money out. This stage is also referred to as being in drawdown, i.e., you’re drawing down your pension savings.

You’re allowed to take 25% of your pension as a tax-free lump sum, up to a maximum of £268,275. This is known as the pension commencement lump sum (PCLS).

Despite the name, you don’t have to take it all at once – you can take a little bit from time to time, for example, to help your income go further. It can be an option itself or one of four potential options below:

  1. Flexible income drawdown – get a tax-free cash lump sum up front and then take a regular income from your remaining investments when you like. Find out more about flexible income

  2. Uncrystallised funds pension lump sum (UFPLS) – you can take smaller lump sums over time with this option.  This can be 25% tax-free cash with the rest taxed at your personal rate of tax.

    Alternatively, you can cash in your whole pot in one go. If you take a large lump sum, you could end up with a big tax bill. This will be a mix of tax-free cash and taxable income at the same time. Find out more about individual lump sums.

  3. An annuity – you can buy a guaranteed income for life or for a fixed number of years, with the income either staying the same or rising in line with inflation. (We do not offer annuities).

  4. Combining some of the above options over time to suit your needs.

Remember, you can book an appointment with Pension Wise , a government-backed service that provides free, impartial guidance to the over-50s with a defined contribution pension, to help you understand your options. You may also want to consult a financial adviser.

How should I work out how much to withdraw?

If you do go into drawdown, think also about what percentage you can take out each year, often referred to as your sustainable withdrawal rate.

  • You can rely on the natural income (interest and dividends) from your investments.
  • Alternatively, you can adopt a total return approach, where you just sell a fixed amount each month to provide a regular income, with any investment growth or income reinvested. Consider the amount you take each month as it will need to last you for the rest of your life.

And don’t forget to factor in your state pension – i.e., what the government pays you when you reach the state pension age1.

What else do I need to know when taking my pension?

Taking your tax-free cash and setting up an income from a pension is often known as crystallisation.

If you’re accessing your pensions for the first time, you should check whether you’re likely to be subject to the money purchase annual allowance (MPAA). This limits the amount you can put back in once you’ve accessed your pensions to £10,000 for 2023-24.

The MPAA won’t normally be triggered if you take a tax-free cash lump sum and buy a lifetime annuity or if you take a tax-free cash lump sum and put your pension pot into flex-access drawdown but don’t actually take income from it. But in most other circumstances, it will be.

There are separate rules for small pot lump sums (pensions under £10,000) too. If in doubt, talk to a financial adviser.

What about passing on your pension?

When you die, defined contribution pensions usually allow you to pass on your pension free of inheritance tax though, depending on the situation, the pension benefits may then be subject to income tax, depending on the recipient’s tax status. 

It’s important to keep the details of your intended beneficiaries up to date, as otherwise your pension may not be paid out to the person you intended. 

Fill in an 'expression of wish’  form to let us know who to pass your Vanguard Personal Pension onto. 


To be eligible for the full state pension – worth £10,600 a year as at 2023-24 – you will need 35 qualifying years on your National Insurance record. You’ll usually need at least 10 of these years to get any state pension. You can check what you’re on track to get from the government on the website

Investment risk information


The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can do down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55.

Any tax reliefs referred to in this document are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. 

The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2023 Vanguard Asset Management Limited. All rights reserved.