Jul 23

How to decide what to do with your pension pot

Reading Time: 6 mins

You’re over 55 (or about to be) and you know you can take out the money from your pension pot.

But should you do it?

If ‘yes’, should you do it all in one go or spread it over a few years?

If you take it out, what should you do with it next?

It’s a worry and all the changes announced by the government only make it even more confusing!

Here’s our step-by-step guide to working out what to do with your lovely pot of pension cash.


Step 1. Talk to your current pension company (or companies)

Horrible thought I know, but at some point you need to grab the nettle (or nettles) and find out how much you have in your pot(s) and how much you would get from it if you took an annuity.

In fact your pension company should contact you six months before you retire anyway and then again six weeks before. Nothing to stop you contacting them even earlier, though, to give you more time to work things out.

If you’re in a workplace pension, or have had a few of them (more likely), get in touch with the pension trustee of each one and find out how much you will get.


Step 2. Use Pension Wise

pension wiseThis is free so grab it!

People about to retire can have one session of free, independent advice on what to do with the money in their pension pot. It’s called Pension Wise and the help will be given by local representatives of The Pensions Advisory Service, Citizens Advice and other free advisory services.

No one knows how good it will be and, frankly, one session is unlikely to be enough for you. You will probably need proper, paid advice on top of this session to really give you the help you need.


Step 3. Think about taking out a lump sum

For a while, we’ve been allowed to take 25% of the pension pot(s) out as a tax-free cash lump sum.

But now (as of April 2015) we’re allowed to take the whole lot out…but after the first 25% it will bpension pote taxed.

It will be taxed as income in the year that you take it.

This can increase the amount of tax you pay.

Also you will need to decide what you’re going to do with that money in order to keep yourself going through what I expect to be your long and happy retirement!

Will you put it into a mix of savings accounts, gilts, income-bearing shares, property or other products like that (see Step 7)?

Or would you actually prefer to put all or some of it into an annuity as it used to have to be?

All these are questions you need to ask yourself and (see Step 5) a proper, independent advisor.


Step 4. Find out how much State pension you will get

pension pot…and consider putting it off for a few years.

You can get a State pension forecast – i.e. find out how much you will get from the State pension – any time by going to You can also speak to the State Pension Service on 0800 731 7898.

In fact, the earlier you check, the more you can do. It’s possible that you haven’t paid enough National Insurance contributions to qualify for the full amount, so if that’s the case you can ask to ‘buy’ up to six-years-worth now. Find out about how to do that here.

Also, seriously consider putting off the start date for receiving your State pension. You could get more money by doing so. You could get a few hundred more each year or claim a lump sum by putting it off by one or two years. It’s worth considering. Find out more about this on the site here.


Step 5. Get paid-for, independent advice

The Pension Wise advice is certainly useful to have and I recommend that you do a bit of reading and thinking of your own about your pension options, what you want to do in your retirement and how you want to provide for family members.

But it’s also useful at this stage to pay for financial advice that will help you maximise your cash and remind you of services you may need later on that you should set aside cash for.

You will probably have to pay around £500 for this sort of advice but it’s worth it as it could save you/make you thousands.


Step 6. Consider working part-time instead of full retirement

pension potOnce you have looked at how much you will get from your State pension and how much you will get from your investments (using the financial adviser to give you ideas of how to get the best income from your investments) you might decide that you need more cash to live on.

Time to think about

  1. Putting off retirement further and earning more, if you can stay in your current job or keep going with your self-employment
  2. Going to a part-time position rather than keeping on working full -time
  3. Retiring from your current post but picking up money-earners to supplement your income in retirement.

As you know, we’re BRILLIANT at coming up with money-makers on the side.

In fact, we have a whole article on money-makers for the over-60s (which are fine for the over-50s too). Check out our article on ways to save for over-50s who are broke as well.

There are loads of money-makers that are fun, too, that get you out and about meeting people as well as bringing in some extra money. Take a look at the list of fun money-makers here.


Step 7. Look at income-bearing investments.

The big question you need proper answers to if you take out a lump sum is what to put it into in order to give yourself a really good annual income.

Jasmine says...

Quote 1

The BIG thing you have to do is to be very wary of cold callers, ads in the papers or on the radio and TV and anything that doesn’t come from an independent advisor, offering you ‘fantastic returns’ on your pension money. There are a LOT of sharks circling new retirees and they want to steal your money. Don’t let them!

Quote 2

So, bearing in mind that lots of people want to take your money from you, take your time in deciding what you want to do with it to bring yourself a good income through retirement (given that it could be 20, 30 or even 40 years plus!)

pension potUnless you decide to go the traditional route and just put it all in an annuity (make sure you shop around for the best one if you do this), then I suggest you put your cash into a mix of investments. These could include two or more of the following:

  • Pensioner bonds (safe and reasonable return)
  • General savings accounts in banks and building societies (safe and pathetic returns)
  • Gilts (safe and fairly dull returns)
  • Peer-to-peer lending (riskier but better returns – be careful which company you go with though)
  • Bond funds (medium to high-risk and returns are medium to high risk)
  • Shares with good dividends (riskier but generally much better returns)
  • Property (medium to risky and can involve extra work – returns depend on where you are buying and what you are buying)
  • Annuity – you could put a small amount of your pot into an annuity as it is totally safe, though the returns can diminish over time with inflation. Or you could consider an annuity when you’re over-80.
  • Small business – putting some money into your own or a friend’s small business is a very risky one so if you go for this make sure you put no more in than you can afford to lose.


Step 8. Get advice again and be very careful

Moving your money for your retirement is a very important decision to make so if you’re still not sure – or you’ve been offered something that sounds fabulous and you don’t know what to do – go and pay for more advice.

It’s worth it!

Or…ask me your question in the comments below. I’ll get you the answers as quickly as possible.


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Rodger Du Good
Rodger Du Good

Thanks for that Jasmine, as usual your comments have been most helpful keep up the good work.
much appreciated.


Hi jasmine
myself and my wife have recently finished work we have capital of around £80000 that we could put away somewhere safe for at least 2 years. we have 4 years to go till we reach pension age, what would you suggest as a safe haven for our hard earned money for at least that period of time.

Rodger Du Good

Rodger du good
Rodger du good

I have one year to go to get 30 years in my company’s final salary pension. What difference would it make to my pension if I was laid off 6 months short of the 30 years, there are talks of lay offs, as a rule of thumb we get to retire on half pay if you reach this target.


Seeing that you have to have 35 years full national insurance stamps to get a full pension. I keep hearing rumours that the goverment might look at some people and say you have a private pension you don’t need a state pension and take it off them, to fund short falls elsewhere surely they could not do this ?


Thanks for the good advice Jasmine could I please ask you to remove my name from the section.
I would prefer to be anonymous . I will then enter into more conversation.


Hi jasmine I have 28years in a final salary I want to work for at least 30years, my pot will be around £300000 then.
I keep reading bad news regarding F/salary pensions in the paper, I don’t know what to do, and how can I trust an independent Financial Advisors, who has possibly only been inn the business a few short months.

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