How to maximise pension income

Harriet Meyer / 30 August 2016

Anyone over 55 can do as they wish with their savings, including taking greater sums in cash, or staying invested. We consider some of the options.

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Retirees will struggle to get a stellar income from annuities with rates at an all-time low.

A £100,000 pot would have bought you an average income of £7,060 a year at age 65 back in 2006. Today, the same pot would get you just £4,770, according to Retirement Advantage.

Are you overestimating your pension pot?

But annuities aren’t your only option for income in retirement. Changes to pension rules introduced in April 2015 provide greater freedom to retirees.

Anyone over 55 can do as they wish with their savings, including taking greater sums in cash, or staying invested. We consider some of the options.

Staying invested

You can stay invested in assets such as corporate bonds and dividend-paying shares to receive an income. This way, you draw the income you need and leave the remaining sum invested.

This gives your pension pot the chance to grow in a rising market – but, of course, it could also fall in value. This pension income option is known as ‘drawdown’.

What is drawdown?

If you’ve a large lump sum invested you may want to take advice. Remember your income isn’t guaranteed, and your pot is subject to stock market gyrations.

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Mix and match

For most retirees, a varied approach to retirement income is best. This could mean, say, buying an annuity with a portion of your pension pot, and investing the rest. This gives the remaining pot a chance to beat inflation over the years.

An annuity buys an income for life. This gives security you can meet basic bills. Remember to shop around for the best rate, particularly if you have health issues. You are likely to get a higher income if you’re a smoker or obese.

The pros and cons of annuities

Drawing cash

You are free to cash in your entire pension pot if you – although this is unlikely to be wise. You can take 25% as a tax-free lump sum, with any remaining cash taxed at your personal rate.

This avoids locking into low annuity rates, but you’ll still need to generate an income with your money. Also, you risk falling into a higher tax bracket if you make large, lump sum withdrawals in one tax year.


Property investment could generate income, if you can buy mortgage-free or with minimal debt. However, this isn’t a tax-efficient option. You will pay tax on any income.

If you need to sell to access capital you may not manage to do so at the price you want. Despite this, some opt for the potential for capital growth and are happy to manage the property themselves to avoid some fees.

Five things that make a good buy-to-let property

You can get free guidance from Pension Wise, on 0800 1383944, and The Pensions Advisory Service, on 0300 1231047. 

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.