A decade ago, the introduction of Pension Freedoms shook up retirement planning and gave retirees more options than ever.
Before 2015, if you had a defined contribution (DC) pension, the common route was to use the money accumulated to purchase an annuity. The annuity would then provide you with a regular income, usually for the rest of your life.
While an annuity can be valuable in some circumstances, it isn’t flexible.
To give retirees more choice, Pension Freedoms were introduced in 2015. If you choose, you can still purchase an annuity, but you might also opt to withdraw lump sums from your pension or take a flexible income that you’re in control of.
You may also mix the options. For instance, you may take an initial lump sum to kickstart retirement, purchase an annuity to create a base income, and withdraw a flexible income when you need to.
So, with a decade of Pension Freedoms data and experiences to draw from, what insights could be valuable when planning for your retirement?
1. Pensioners could be missing out on returns by withdrawing a tax-free lump sum
One of the key changes in 2015 was the ability to withdraw 25% of your pension tax-free (up to £268,275 in 2025/26) when you turn 55, rising to 57 in 2028.
The good news is that, despite fears of reckless spending, figures suggest most retirees aren’t immediately withdrawing this lump sum. According to Royal London data published in March 2025, just 8% of people took their tax-free lump sum within six months of turning 55.
However, more than half of retirees choose to withdraw the lump sum at some point. The most common reason was to pay off a mortgage or reduce other debt, which could provide greater financial security over the long term.
Yet, around a quarter of people taking the tax-free cash simply deposited the money in the bank.
While having accessible cash might feel reassuring, leaving it in your pension, where it’s likely to be invested, could yield higher returns over a long-term time frame when compared to a savings account.
You don’t need to withdraw the 25% lump sum in one go to benefit from the tax-free cash. You can also spread it across multiple withdrawals. So, if you don’t have a clear plan to spend a lump sum, leaving it in your pension might make financial sense.
2. Over-50s are worried about running out of money in retirement
As you're in control of how you access your pension savings, there is a risk that you could withdraw too much too soon, either by taking a large lump sum or withdrawing an unsustainable regular income.
While figures suggest most retirees are taking a measured approach, 42% of over-50s told Royal London that they worry about running out of money in retirement.
There are several ways to alleviate your fears and have confidence in your retirement finances.
One option might be to purchase an annuity to create a base income.
According to statistics from the Financial Conduct Authority (FCA), retirees are often choosing flexi-access drawdown over purchasing an annuity.
Indeed, in 2023/24, 68% of retirees accessing a pension worth between £100,000 and £249,999 did so by taking a flexible income. In contrast, just under 20% purchased an annuity. While an annuity isn’t right for everyone, it could offer peace of mind.
Another option is to work with a financial planner when you take a flexible income. We could help you assess your pension and other assets to understand what a sustainable income is for you.
3. Retirees could face an unexpected tax bill
While you may have retired, you could still benefit from considering your tax liability, including Income Tax.
If your total income, including withdrawals from your pension and the income you receive from the State Pension, exceeds the Personal Allowance (£12,570 in 2025/26), you may be liable for Income Tax. Managing your withdrawals could help you avoid an unexpected tax bill or being pushed into a higher tax bracket.
Yet, the Royal London research found just 4 in 10 people considered the tax implications of withdrawing a taxable lump sum from their pension.
4. Most retirees aren’t seeking advice or guidance
The FCA data indicates that just 30% of people accessing their pension for the first time took regulated financial advice.
In addition, the Royal London survey suggests that 1 in 5 people didn’t speak to anyone about their pension or use any tools, such as income or tax calculators, before they made a withdrawal.
While retirement is an exciting milestone and you may feel confident handling your finances, it’s important to remember that the decisions you make now could affect your financial security for the rest of your life.
Seeking professional advice or guidance could help you make choices that are right for you, identify potential risks, and put your mind at ease as you enjoy the next chapter of your life.
Working with a financial planner may help you navigate Pension Freedoms
Pension Freedoms mean you have far more flexibility than previous generations, but they may also come with additional responsibility, such as ensuring you don’t run out of money. A retirement plan could help you manage your finances as you prepare for the milestone and once you give up work.
Please get in touch to speak to one of our team about your options for creating an income when you retire.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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. Past performance is not a reliable indicator of future performance.
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.