When you save into a pension, you can’t normally access the wealth until you’re 55. So, no matter how tempted you are to spend your retirement savings, you won’t be able to and your pension will continue to grow.
However, when you reach 55 and you can start withdrawing wealth from your pension, you might consider taking a portion of your savings right away.
This is relatively common as Legal & General reports that 21% of people immediately accessed their pensions at 55. Of those people, 10% withdrew their entire pension pot at once.
While this might have been the right choice for some of these individuals, 18% said that if given the choice again they would’ve withdrawn less or not accessed the pension at all.
To avoid this regret, it’s important to think carefully before withdrawing any savings from your pension.
Here are five important factors you may want to consider.
1. Why you’re accessing your savings
Before making any decisions, consider why you want to access your savings and whether you have a specific use for the wealth. You might have a defined goal you want to achieve, such as a dream holiday or renovating your home, for instance.
Yet, the Legal & General research found that 46% of people who accessed their pensions said they took a lump sum “because they could”. This is understandable because as soon as you reach 55 you suddenly have access to a large savings pot, and it can be tempting to draw some of this wealth.
However, any savings you leave in your pension remain invested, and could continue growing in the future. So, if you don’t need the funds for a specific reason, it might be more beneficial to leave them.
Additionally, there are certain tax implications to account for and drawing a large sum from your pension now could make it more difficult to generate an income tax-efficiently in the future.
That’s why it’s important to consider whether you really need to draw from your pension savings.
2. How the withdrawal will affect your tax-free lump sum
When taking wealth from your pensions, you may want to think about the tax implications.
Normally, you can take the first 25% of your pension as a tax-free commencement lump sum, up to the Lump Sum Allowance (LSA) of £268,275.
You will then pay Income Tax on any withdrawals from the remaining 75%, if they exceed your Personal Allowance of £12,570 in 2025/26.
Many providers allow you to draw from the tax-free and taxable portion of your pension at the same time. If you plan carefully, you may be able to use this to your advantage and limit the Income Tax you pay in the future.
However, you might not have this option if you take your entire tax-free lump sum as soon as you reach 55.
As such, when making any withdrawals from your pension, take time to understand the tax implications and how this might affect your ability to generate a tax-efficient income later in life.
3. Whether you want to continue contributing to your pension in the future
If you plan to retire at 55, you might begin drawing pension wealth to fund your lifestyle and may not make any further contributions to your retirement pot. Conversely, if you’re still working, you might plan to continue paying into your pension after 55.
If so, you may want to think carefully about whether you need to access your savings. Once you draw flexibly from a defined contribution (DC) pension, you trigger the “Money Purchase Annual Allowance” (MPAA).
In 2025/26, your Annual Allowance – the total amount you can contribute to your pension each year while benefiting from tax relief – is £60,000 (or 100% of your earnings, whichever is lower).
But, when you trigger the MPAA, your Annual Allowance effectively falls to £10,000.
This means you won’t be able to make as many tax-efficient contributions to your pension in the future.
4. If you could draw from other savings instead
Drawing from your pension as soon as possible could mean that you unnecessarily use your tax-free lump sum and trigger the MPAA. You might miss out on investment growth too, so if you don’t need the funds for a specific purpose, you may want to leave your pensions alone.
That said, you might have a genuine need for additional income so may be considering accessing your pension.
Before you do, consider whether you could draw from other savings instead. For instance, you might have wealth in an ISA, or stocks and shares in a General Investment Account (GIA).
Relying on these savings first could help you avoid some of the potential challenges associated with accessing your pension. You can then leave your pension savings invested and potentially generate more growth, before making tax-efficient withdrawals in the future.
5. Whether you could benefit from professional advice before making a withdrawal
Legal & General found that 27% of UK adults over the age of 50 made decisions about their pensions without taking professional advice first. Accessing your pensions without seeking guidance could mean you’re more likely to make costly mistakes.
Fortunately, with our support, you can ensure that you understand all the tax implications of drawing from your pension. We’ll also help you explore alternative sources of wealth and decide whether you definitely need to draw from your pension.
When you do begin accessing your pension, we can discuss the most tax-efficient ways to draw an income.
Get in touch
If you are considering drawing from your pension for the first time, we can support you.
Please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by the Openwork Partnership on 03/09/2025
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