Want to draw from your pension as soon as you can? Why it’s worth taking advice first

In April 2015, the government introduced Pension Freedoms – a new set of rules about how and when savers could access the wealth in their pensions.

Since then, you’ve been able to take the first 25% of your pension as a tax-free lump sum from the normal minimum pension age of 55 (rising to 57 in April 2028). You might decide to take the full 25% in one go or spread the lump sum over multiple payments.

Once you’ve used the tax-free portion of your pension, you can continue drawing a regular income or take lump sums whenever you choose, and these payments may attract Income Tax.

This is known as “drawdown” and gives you far more flexibility over how you use your pension wealth than you previously would have had. Alternatively, as you could before, you can still purchase an annuity with your savings, exchanging some or all of your fund in return for a guaranteed income, usually for life.

If you’re approaching 55, you might consider drawing from your pensions right away and possibly taking the full tax-free lump sum, and you wouldn’t be alone.

Research from Royal London explored the decisions people made in the 10 years since the government introduced Pension Freedoms. The findings showed that 8% of savers took their tax-free lump sum within six months of their 55th birthday.

What’s more, 55% of those eligible to take a tax-free lump sum took the full amount.

Yet, accessing your pension wealth as soon as possible may not always be the most sensible choice and could affect your retirement income later in life.

As such, you might benefit from seeking professional advice before making any decisions.

Read on to learn why.

1. You may not need to access wealth from your pensions to achieve financial goals

You may want to take some or all of your tax-free lump sum to achieve certain financial goals. For example, the research from Royal London found:

• 32% of people used their lump sum to pay off a personal loan
• 15% paid off their mortgage
• 19% spent on home improvements
• 8% financially supported family members.

However, many people draw from their pensions even though they don’t have a specific use for the wealth. According to Professional Paraplanner, 46% of those surveyed said they took a lump sum from their pension simply because they could.

This may be an example of the “lottery effect”, where overnight access to large sums of money causes people to make impulsive decisions.

Before accessing your pensions, you may want to consider whether you need the wealth to meet a specific goal or cover your living expenses. If you don’t, it could be better to leave your savings alone.

If there are financial goals you want to achieve, such as paying off debts or supporting family members, decide whether you could use other sources of wealth instead of your pension. If you’re still working, you might be able to cover these expenses with your regular income, for example.

Alternatively, you may have wealth in a Cash ISA or another savings account.

A financial planner can use cashflow planning to assess your income and savings and determine whether you can reach your financial goals without accessing your pension wealth right away.

2. It’s important to understand the tax implications of accessing your pensions

Royal London reports that only 37% of those who took a lump sum considered whether this would move them into a higher tax bracket or cause them to pay more tax.

This could mean they’re not being tax-efficient when accessing their savings. That’s why it’s important to understand the tax you could pay when you start drawing from your pension.

While the first 25% of your pension is tax-free, you will typically pay Income Tax at your marginal rate on withdrawals from the remaining 75%, if they exceed your Personal Allowance (£12,570 in 2025/26).

If you take your full tax-free lump sum as soon as you turn 55, you could then pay Income Tax on any further withdrawals.

This could be more likely in later life as the State Pension continues rising. Indeed, the full State Pension amount is £11,973 in 2025/26. This already uses much of your Personal Allowance, meaning additional withdrawals from other pensions will likely be taxable if you’ve used your tax-free lump sum.

Fortunately, many providers allow you to draw from the tax-free and taxable portions of your pension at the same time. A financial planner could help you take advantage of this and make tactical withdrawals to potentially limit the Income Tax you pay.

That’s why you might want to think ahead and keep some or all of your tax-free lump sum for when you reach the State Pension Age of 66 (rising to 67 and eventually 68, starting in 2026).

Additionally, we might suggest you supplement pension income with other tax-efficient savings, such as those in an ISA.

Ultimately, this could mean you pay less tax when drawing from your pensions, meaning you have more to spend on funding your dream lifestyle.

It’s also important to note that once you flexibly access your pension, you might trigger the Money Purchase Annual Allowance (MPAA). This reduces your Annual Allowance – the amount you can contribute to your pension tax-efficiently each year.

In 2025/26, the Annual Allowance is £60,000 (or 100% of your earnings, whichever is lower). Yet, once you trigger the MPAA, this falls to £10,000.

You may want to consider this before drawing from your savings, especially if you’re still working and regularly contributing to your pension.

A financial planner can help you fully understand the tax implications of taking wealth from your pension, so you can make informed decisions.

3. Leaving your savings invested for longer could increase your retirement income later

The wealth in your pension is invested and could grow over time. As such, if you leave your savings untouched for as long as possible, you may be able to increase the size of your retirement pot. This could mean you enjoy a better quality of life later.

Figures from Fidelity show how this might work.

If your pension pot is worth £80,000, you can take a tax-free lump sum of £20,000. However, if you left that wealth in your pension for another 10 years, and achieved growth of 5% a year, your pension would be worth £124,000.

At this point, your tax-free lump sum would be £31,000 – an increase of £11,000.

As such, leaving your pension savings until you absolutely need them could mean you have a higher income in later life.

A financial planner could support you here by exploring other ways to fund your lifestyle, so you can leave your pension savings to grow.

Get in touch

We can provide the necessary guidance if you plan to draw from your pension for the first time.

Email contact@caliberfm.co.uk or call 01525 375286 to speak to one of our team 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.

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.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.

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.