Which retirement option is right for you?

Last reviewed: August 2026

There are four main ways to turn a pension pot into money you can spend. This is a short guide to which tends to suit whom. For how each one actually works, see our fuller explanation of retirement options.

You do not have to choose only one. Many people are best served by a combination, and you can take cash and income at different times to suit your circumstances.

An annuity may suit you if

• You want the certainty of a guaranteed income for the rest of your life, however long that is
• You do not want your income moving with markets
• You want the option of income that rises with inflation, or a pension that continues for your spouse
• You would rather not have to manage anything once it is set up

Be aware: buying a lifetime annuity is irreversible. Once it is in place it cannot be undone, so it is worth being certain before you commit. Rates vary considerably between providers and your health can improve the rate you are offered, so it should never be bought without shopping around.

Flexi-access drawdown may suit you if

• You want to take income as and when you need it, and vary it year to year
• You have other income and can afford to leave the pension invested for now
• You want to control how much taxable income you take in any one tax year
• You want what is left to pass to your family

Be aware: your money stays invested and can fall in value, and it can run out. See our fuller article on drawdown for the trade-offs.

Taking the whole pot as cash may suit you if

• Your pot is small and a regular income from it would be negligible
• Your health is poor and a guaranteed income for life is unlikely to be good value
• You have a specific need for the full amount and do not want anything left invested

Be aware, and this is the one that costs people most: only 25% is tax free. The other 75% is added to your income for that tax year and taxed at your marginal rate. Taking a large pot in one go can push you from basic rate into higher or even additional rate, and the tax bill is frequently far larger than people expect. Spreading the same withdrawals across two or more tax years often saves thousands.

HMRC also usually applies emergency tax to a first withdrawal, so you may pay too much upfront and need to reclaim it.

Taking lump sums as you go (UFPLS) may suit you if

• You want occasional lump sums rather than a regular income
• You want to take different amounts each time
• You would rather spread your tax-free cash over several years than take it all at once

Be aware: 25% of each withdrawal is tax free and the remaining 75% is taxable, so the same care about which tax year you take money in applies here too.

One thing that applies to all of them

Once you take anything beyond your tax-free cash, the money purchase annual allowance is triggered and what you can pay into pensions each year falls to £10,000. If you are still working and still contributing, that matters.

What changes in April 2027

From 6 April 2027, most unused pension funds count towards your estate for inheritance tax. That weakens one of the long-standing arguments for leaving a pension untouched, and for many people it changes which pot to spend first.

Read our full explanation of the April 2027 changes

What actually decides it

Your age and health. When you plan to stop or reduce work. Whether anyone depends on you financially. How much certainty you need to sleep at night. The size of your pension relative to your other assets. And how much tax you would pay under each route.

Those are personal questions rather than technical ones, which is why the answer differs so much from one person to the next.

Figures correct for the 2026/27 tax year. This article is for general information and does not constitute personal advice. The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future.

Talk it through with one of us

The first conversation is free and there is no obligation. Book with whichever adviser is closest to you, or whoever suits. We work with clients across the UK.

Lee Barton (Leicester) | Ian Laker (Tamworth) | Chris Wood (Coventry)