Your Pension Options at 65: What Can You Do?

Your Pension Options at 65

At age 65, you have full access to your defined contribution pension. Understanding your options is crucial — the decisions you make now will affect your retirement income for decades.

Option 1: Take 25% Tax-Free Cash

You can take up to 25% of your pension pot as a tax-free lump sum. For a £200,000 pot, that is £50,000 tax-free. You can take this as a single lump sum or in stages through drawdown.

Option 2: Pension Drawdown

Keep your pension invested and take an income as you need it. Offers flexibility but carries investment risk. You control how much you withdraw and when.

Option 3: Buy an Annuity

Exchange your pension pot for a guaranteed income for life. Provides certainty but less flexibility. Annuity rates in 2026 are relatively attractive following interest rate rises.

Option 4: Combination Approach

Many people use a mix — taking tax-free cash, buying a small annuity for baseline income, and keeping the rest in drawdown for flexibility. This blended approach can offer the best of both worlds.

Option 5: Leave It Invested

You do not have to access your pension at 65. Leaving it invested allows continued tax-free growth. This can be beneficial if you have other income sources or want to maximise your pot for later.

Tax Implications at 65

The first 25% of your pension is tax-free. Beyond that, withdrawals are taxed as income. Spreading withdrawals across tax years and staying within lower tax bands can significantly reduce your overall tax bill.

Important: Taking taxable income from your pension triggers the Money Purchase Annual Allowance (MPAA), limiting future pension contributions to £10,000 per year.

Frequently Asked Questions

This guide covers the key aspects of your pension options at 65. The answer depends on your specific circumstances, but the information above provides comprehensive guidance.

For significant pension decisions, professional advice from an FCA-regulated adviser is recommended. The cost is typically recovered through better tax planning and investment strategies.

Initial pension advice typically costs £500-£3,000 depending on the complexity. Ongoing management is usually 0.5-1% per year. Through PensionHelper, our matching service is free.

The annual allowance for pension contributions is £60,000 for the 2025/26 tax year (or 100% of your earnings, whichever is lower). Higher earners may face a tapered allowance.

Basic rate taxpayers get 20% relief automatically. Higher rate (40%) and additional rate (45%) taxpayers claim extra relief through Self Assessment. Salary sacrifice saves National Insurance too.

Currently from age 55, rising to 57 from April 2028. You can take 25% tax-free and access the rest through drawdown, annuity, or lump sum withdrawals.