Life at work...and beyond

A study carried out in 2018 found that the average Briton will spend 3,507 days at work including 204 days of overtime in their lifetime, and will make 7,967 rounds of tea or coffee for colleagues

What is retirement?

Whether or not our jobs are our passion, the majority of us will spend a significant amount of our lives at work.

In fact a study carried out in 2018 found that the average Briton will spend 3,507 days at work including 204 days of overtime in their lifetime (and will make 7,967 rounds of tea or coffee for colleagues while they’re at it).

But what happens when you’re approaching a time after work?

Lots of us are excited about finally having time to do the things we want to do, instead of what we get paid to do.  Yet for some the prospect of retirement can be daunting seeming like a cliff edge where one day they’re at work and the next they’re at home wondering what to do

In reality, most people’s retirement these days doesn’t look like that. For example, you might not want to retire completely, choosing instead to work part-time, or you might want to withdraw part of your pension and dip into it later as and when you need it. Either way, you should have more opportunity for hobbies and other ways of spending your time.

It may seem a long way away now, but it’s really important to plan ahead and work out what you want to do when you reach the age when you want to ‘retire’.

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What will your retirement look like?

Retirement no longer means finishing work on one day and relaxing the next.

Many people choose to retire gradually and continue working in some capacity. You don’t even have to retire to take benefits provided you are aged 55 or over.

Whichever route you take, you will want to ensure you have enough money to cover your essential living costs for the rest of your life and perhaps a little extra to pay for the things you really want to do.


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What will you get up to in retirement?

Portrait of smiling senior woman

Reduce working hours

Male hand holding car keys offering new blue car on background

Buy a car

Middle-aged man having a restful moment relaxing in sofa

Stop working entirely


Closeup of hand holding credit card

Pay off debts

Grandfather with kids using electronic tab

Help children and grandchildren

Elder woman reading a book at home and smiling-1

Care costs

long boat and rocks on beach in Krabi, Thailand

Take a holiday

Closeup of paintbrush in woman hands mixing paints on palette

New hobby

Computer and digital tablet on a table at home

Home improvement or downsize


When you come to convert your retirement savings into an income or cash – either in full, or in part – you need to choose a solution that is flexible enough to meet your changing needs and that suits the requirements of both you and your family.

There are a wide variety of options you can use to convert your hard-earned pension savings into an income or cash. This flexibility gives far greater freedom and choice but also far greater responsibility, when you’re doing your retirement planning, to ensure you have enough to live on for your entire lifetime.

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Retirement planning: things to consider

So retirement may not be the 'cliff edge' you'd visualised. That being the case, there are plenty of things you need to think about before you start planning what you want your retirement to look like.

Retirement could last longer than you think

Due to advances in medicine and improved lifestyle, many of us are living for longer than ever before. Whereas in the past our retirement might have lasted 10-15 years, now it may be more likely to be in the region of 20-25 years.

Life expectancy of a UK citizen (source: ONS)


Average life expectancy from birth

Years in retirement from age 65







In 2018, there were 584,024 people living in the UK aged 90 or over (source: ONS). So you need to ensure your pension savings will last your entire lifetime.

What about the State Pension?

These days there’s no set age when you have to retire, but there’s still a State Pension Age.  This is when you become eligible for the full State Pension, provided you have a total of 35 qualifying years of National Insurance contributions or credits (either through NI payments via earnings, National Insurance Credits, or voluntary NI contributions).

For those reaching State Pension age currently, the full State Pension is £175.20 per week (for those who reached State Pension Age before 6 April 2016 it is lower, at £134.25 per week).

If you have fewer than 35 qualifying years, your basic State Pension will be less than the full amount per week but you might be able to top up by paying voluntary National Insurance contributions

The State Pension Age varies depending on when you were born.  You can find more information about it on

You don’t have to claim your State Pension as soon as you reach State Pension age. By deferring, you could get more when you do come to claim it. The website will inform you how much more you could receive by delaying.

After you claim, the extra amount you receive because you deferred will usually increase each year in line with inflation.

Economic factors

If you use a retirement income solution that invests your retirement fund, you will be reliant on external economic factors such as the rate of inflation, interest rates and investment markets.

It’s impossible to predict stock markets, so you should consider any element of investment risk and your capacity for loss (how much you can afford to lose before it has a material impact on your standard of living) before making a decision.


Inflation can erode the value of your savings as the costs of products and services can rise faster than your savings can grow. Consider how long you are likely to live for and how much inflation will erode the value of your pension savings during this time.

Some retirement income solutions can offer the option of increasing in line with inflation, but these are often expensive and offer a much lower initial income.

Levels of risk

How much income will you need to cover your essential costs, such as housing, utilities, food and clothes? A good retirement planning strategy should ensure these essential costs are covered by a guaranteed source of income and that this lasts for your entire lifetime.

This table shows the main retirement income solutions based on the element of risk each contains.




Retirement income solutions

Other assets/investments/equity release
Drawdown (without guarantees)
Drawdown (with guarantees)
Flexible Cash Withdrawal
Defined Benefit pension
State Pension & Benefits

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Consolidating your pension pots

Many of us will have more than one pension arrangement from different employers or individual plans which we have contributed to.

It can make sense to bring the pension savings held in these different arrangements into one plan at the point of converting them into retirement income or cash.

This is generally referred to as ‘consolidation’.

Benefits of consolidation:

  • You will only have to deal with one provider.

  • You may have access to a wider investment choice and more competitive charges.

  • It could make shopping around for the best and most suitable retirement income option easier and improve overall income.

  • If you decide to buy an annuity, you will only receive one payment each time.

  • You could receive a better annuity rate as your pension pot will be bigger.

We will always check to ensure that you don’t suffer any penalties for transferring your funds. Contact us for more information.

Important considerations

Before making any decision on which option(s) would be most suitable for you, you need to ask yourself the following:

  • What kind of investment return am I looking for if any?

  • How much risk am I prepared to take?

  • Can I afford for an element of my pension savings to reduce in value?

  • How does my health or lifestyle potentially affect my options?

  • What are the advantages and disadvantages of each option I am considering?

  • Is the solution right for my objectives and personal circumstances?

Converting your pension savings into a retirement income

Since April 2015 you have the freedom to access your pension savings as and when you want to from age 55 (although the Government has proposed that this will rise to 57 from 2028).

As part of your retirement planning process, you need to take care to ensure the choices you make provide you with the best retirement income for your circumstances and that this lasts your entire lifetime.

It is important to be aware that the earlier you access your pension savings, the smaller your fund is likely to be.

You should consider using a guaranteed solution to cover your basic living costs. If you have any remaining funds, these can be used to provide a flexible income as and when it is needed most and to cover any additional expenses you may require.

Remember that you don’t have to choose just one option. You can select a range of solutions to suit your retirement strategy.

If all these options are not available in your current pension plan, you could consider transferring your pension savings to a different provider to access the flexibilities.

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Your options

Some of the options for taking a retirement income are shown below. These aren't exhaustive, so you should always talk to a financial adviser to see if others are available and suitable for you.

Tax-Free Cash

In general, you can take up to 25% of your pension savings as a tax-free lump sum and the remainder of your fund will be taxed as income. With Flexi-access drawdown you can initially just take your tax-free lump sum only and defer taking any taxable income.

Where flexible cash payments are made under an option called Uncrystallised Funds Pension Lump Sum (UFPLS) 25% of each payment is tax free and the rest is taxed at your highest marginal rate of income tax.

Unlike Flexi-access drawdown, it is not possible to access the tax-free lump sum only.

Small Pots

If your pension pot is £10,000 or less, it may be classed as a ‘small pension pot’. You can take the full amount as cash (but only up to 25% will be tax-free) and this will not affect your Annual Allowance.

You can take up to three small pension pots in your lifetime from personal pension/stakeholder plans and there is no limit on the number from occupational pension schemes.



Withdrawing cash from your pension fund

If you want to you can take your entire pension savings fund as one cash payment, or this can be spread over a number of months or years. However, you must exercise caution.

If your pension savings run out before you die, you will be reliant on any other sources of income or capital you have and/or any state benefits that are available to you at the time. This may cause you hardship at a time when you are less able to cope with the consequences.

Tax implications

You can usually take up to 25% of your total pension savings tax free. Any remaining funds you take as cash will be charged income tax at your highest marginal rate for the tax year in which you take it. You should therefore be careful that you are not pushed into a higher rate income tax bracket, especially if you have already received some additional income within that tax year.

You will need to check that you have sufficient Lifetime Allowance available to extract cash payments in this way.

Phased extraction of cash

Taking your savings bit by bit over a number of years (also known as ‘phased extraction of cash’), could prevent you going into a higher rate tax bracket in any given year. Up to 25% of each payment will be tax free.

You can usually take up to 25% of your total pension savings tax free.

If you or your employer are still contributing to a pension plan, your Annual Allowance will be reduced. This is known as the Money Purchase Annual Allowance (MPAA). Should you wish to make ongoing contributions, you should check whether this will affect you in any way as otherwise this could create tax implications.


Complete control over your money

It could run out before you die

Can be used to pay off debts

You could face high tax charges if you withdraw large sums

Can provide flexibility

You have to decide what to do with the funds


If you receive a fixed income and you or your employer are still contributing to a pension plan, your Annual Allowance will be reduced





Defined Benefit (Final Salary) schemes

Some employers offer Defined Benefit (Final Salary) pension schemes. When you retire the scheme will pay you a pension based on rules set out by the scheme.

The pension income is usually based on:

  • The number of years you have been a member of the scheme – known as pensionable service.

  • Your pensionable earnings – this could be your salary at retirement (known as ‘Final Salary’), or salary averaged over a career (‘career average’), or some other formula; and

  • The proportion of those earnings you receive as a pension for each year of membership – this is called the accrual rate and some commonly used rates are 1/60th or 1/80th of your pensionable earnings for each year of pensionable service.

Defined Benefit (DB) schemes have been the ‘gold standard’ for pensions as they are generally much more secure and generous than Defined Contribution (DC) schemes and often pay an income that increases in line with inflation. Because of the benefits promised by the DB scheme there are significant risks associated with transferring out of such arrangements - a transfer from a DB pension scheme means giving up your promised benefits in the scheme in return for a cash value, which is invested in another pension scheme where there is no certainty of the benefits you may receive.

For some people this may be appropriate but for any transfer values in excess of £30,000 regulated advice must be obtained before the transfer can proceed. We would encourage you to take professional advice in all cases where you are considering a transfer.


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What is an annuity?

An annuity provides a regular, guaranteed income for the rest of your life.

The amount of annuity payment you receive depends on the size of your pension fund (after any tax-free cash has been taken) and your age.

Other influencing factors include:

  • the type of annuity you select

  • your health and lifestyle

  • where you live – for example annuities can be postcode based

  • any additional benefits you select – such as the provision of death benefits

  • the rate offered by the insurance company

Always shop around for your annuity

Annuities are provided by insurance companies and rates will differ from company to company in the same way car insurance quotes differ if you shop around. Annuity rates can change frequently and some companies are often more competitive than others. It’s therefore very important to shop around (also known as using the Open Market Option) in order to obtain the best possible rate.

Unfortunately, many people fail to use the Open Market Option when they purchase their annuity or set up a drawdown fund. Many take the annuity offered by their pension fund provider and in doing so lose the potential to increase their annuity income. Consulting a financial adviser during your retirement planning process means you will have access to the full Open Market and all the products available, to help you find the one that’s best for you.

How does pension drawdown work?

Drawdown means you can keep your pension fund invested and draw an income as and when you need to, which can be varied to suit your needs.

You retain control over where your fund is invested and if it grows you can increase your income if you wish; but if it falls, you may need to reduce the income you take.

The important thing to note is that once your fund has gone, your income stops. If you outlive your funds and have no other source of income, you could be reliant on any other capital you may have and any state provision which is available at the time.

If opting for Drawdown, you should always take advice as these are complex products and do not provide a guaranteed income for life. This means you have a far greater responsibility for the careful management of your retirement income. When using a Drawdown arrangement, any remaining money in the fund when you die can be passed to your beneficiaries. However, there could be a tax charge applicable depending on your age when you die.

We’re often asked, ‘What happens to my pension when I die?’.

Remember that the remaining fund can be passed to any beneficiaries, not just financial dependants. Take the time to carefully consider what wealth you wish to pass on to your beneficiaries and ensure your death benefit instructions are kept up to date.

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What do I do now?

With something as complicated as retirement it can be hard to work out what’s best to do - but we’re here to help.

Regardless of the size of your pension pot(s), we can help you plan out the best way to access your retirement income.

One of our regulated, qualified financial advisers will be happy to speak to you at no cost for this initial meeting (subsequent advice services are chargeable).

It could be the most important conversation you have about understanding and enjoying your retirement savings.


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