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Ten years after pension freedoms were introduced, millions are enjoying greater control, but research shows more than two in five over-50s worry about running out of money in retirement. Taking charge of your retirement income certainly isn’t without pitfalls. This article provides expert tips to navigate the complexities and ensure your pension lasts as long as you do.
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George Osborne’s 2014 Budget bombshell ripped up the pension rulebook. The pension freedoms have given people more control over how they access their savings, relaxing rules around drawdown, and launching a retirement revolution in the UK that utterly transformed the market.
Since the introduction of the landmark pension freedoms reforms in April 2015, wealth firm AJ Bell estimates almost seven million pension pots have been accessed for the first time. Before the pension freedoms, around 75% of defined contribution pension pots were used to buy a fixed income with an annuity, according to Treasury data.
But that has plummeted to less than 10% (in 2023-24) as annuities quickly fell out of fashion once they were no longer the default option. Drawdown – where your pension remains invested and is accessed by withdrawals as and when you wish – is by far the most popular option for people accessing pots of £30,000 or more, used by 60% last year, according to data from the Financial Conduct Authority (FCA).
Some people do choose to cash in their whole pension, although the overwhelming majority of those are ‘small’ pots worth less than £30,000.
David Gibb, chartered financial planner at Quilter Cheviot, says the ability to access your pension flexibly using the freedoms “has been a huge benefit for many”. “But it also placed a lot more responsibility on individuals to manage their money wisely. With more choice has come more complexity – and sometimes more risk.”
Research from Royal London found that people are using the freedoms to take money out of their pension without seeking advice or finding out what tax they’ll have to pay on their withdrawal.
This means they may pay more tax than they need and increases the risk that they will run out of money. Only four in 10 over-55s looked at the tax implications of taking out a taxable lump sum; just four in 10 of those with a defined contribution pension took advice before taking money out of their pension. And one in five didn’t speak to anyone, or use any tools or calculators.
Just over half of those eligible to take a tax-free lump sum chose to take the maximum of 25% of their pension. A quarter simply deposited the money in a bank or savings account. While these might seem like good decisions at the time, there may be downsides. There may be benefits in taking tax-free cash in stages. Or it might make more sense to invest tax-free cash, rather than leaving it in a savings account.
Clare Moffat, Royal London’s tax and pensions expert, says: “Deciding when and how to start taking money out of your retirement pot remains one of the most complex challenges of later life. More than two in five (42%) of those aged 50 or over said they worried about running out of money in retirement.”
Someone in their 50s should be paying as much as they can into their pension, to give them the biggest possible pot. Our article on how much money you need to retire can help you to think about what type of retirement you’d like and what you can financially afford.
At the point of retirement, many people are focused on tax-free cash and don’t think about the other 75% going into their drawdown fund, according to Moffat. “But for most people, that fund is what will provide your retirement income.”
It’s important, she says, to think about the level of risk that you are willing – and need – to take with your nest egg. “Some risk is usually necessary for the growth of your pension pot to keep pace with inflation. It can be difficult to work out the right level of risk, and an adviser can be a real help here. Taking too little risk can have as significant an impact on the sustainability of your income drawdown plan as taking too much risk,” she points out.
Gibb says that when it comes to investing your drawdown pot to last you through retirement, the key is balance. “You need growth to sustain your income for potentially 30 years or more, but you also need to manage risk so you’re not forced to sell investments after a market fall,” he says.
He adds that a well-diversified portfolio with a blend of equities and lower-risk assets like bonds is still the best approach for most. “And having a cash buffer or short-term bond fund to meet income needs over the next two or three years can reduce pressure on your investments during volatility.” This is because maintaining withdrawals from your pension while the value of your investments is falling will shorten the lifespan of your pot.
Many people want the flexibility that drawdown brings. You can take out a regular income every month, or just take out larger sums as and when you need the money, perhaps for larger purchases like a new car or a holiday.
It’s totally up to you when you make withdrawals and how much you take. This control can be helpful for tax planning. For example, it will make sense for many people to remain basic rate taxpayers, which means limiting withdrawals to keep your overall annual income below £50,270.
If your income exceeds this, you would need to start paying tax on the excess at the higher rate. However, the biggest risk of drawdown is that you take too much out of your pension, warns Jason Hollands, managing director at wealth manager Evelyn Partners. If withdrawals are too high, you may run out of money.
He says this can be particularly risky “if you continue to make consistent withdrawals in periods where markets have fallen and can’t cope with variability in income.” Hollands adds that if you use a financial planner, they will be able to “build a cash flow model to forecast your expected outgoings over time, project your pension returns and the impact of inflation”.
This will help them “determine what a sustainable rate of withdrawal is and whether there is a mismatch between your expectations and pensions and savings war chest,” he says. These models can be used to check whether your retirement plan is viable. Gibb warns that people “tend to under-estimate their life expectancy and over-estimate how much they can sustainably withdraw each year”.
The classic 4% rule – which means you withdraw 4% of your pot each year – can be a useful rule of thumb, but it’s not fool-proof, especially during periods of high inflation or poor investment returns. It needs to be adapted for each individual’s circumstances.
“One of the big lessons from the last 10 years is the importance of adjusting your income over time,” says Gibb. “Being flexible, taking less when markets are down and more when they’re strong can significantly reduce the risk of running out of money. It’s also critical to regularly review your plan to ensure it still makes sense given your spending, investment performance, and longevity risk.”
Most people spend more in the early years of their retirement and then start to spend less. But many people are living until their 90s or older, and you need to make sure that your drawdown pot will last as long as you do – perhaps even longer if you want to pass it on to a partner or family member.
The annuity market shrivelled in the aftermath of the pension freedom reforms, but despite claims that the market would die off, that has not proved to be the case. In fact, in recent years annuities have had a mini-resurgence. The latest Association of British Insurers data shows that the market was at a 10-year high in February 2025.
Helen Morrissey, head of retirement analysis at wealth firm Hargreaves Lansdown, says: “Key to the annuity market’s brighter fortunes is the increase in interest rates that we saw a few years back. These have pushed annuity incomes on offer skyward.”
The most recent data from Hargreaves Lansdown’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,626 a year from a single life, level annuity. This is the highest income since unisex annuity rates were introduced back in 2012. “This has fuelled interest in people looking to secure a level of guaranteed income in retirement, so they continue to play an important role,” Morrissey adds.
While choosing between drawdown and an annuity is often regarded as an either/or choice, it needn’t be the case. Hollands says that for some retirees, it can make sense to use both. “Maybe use part of a pension to purchase an annuity alongside your state pension to provide a guaranteed level of income that will cover basic retirement costs, while keeping part of your pension pot invested so it can be accessed via drawdown,” he says.
A pension in drawdown offers the potential to deliver a growing income over time, but this also comes with risk and exposure to market volatility, so a bit of both can be the right choice.
Deciding what is the best route for you can be confusing. However, there is plenty of guidance available to help you make more informed decisions. For example, you can find pensions calculators online, helping you work out how much you need to save for retirement, how long your pension may last or how much tax you might pay on withdrawals. The government’s MoneyHelper website has a useful pension calculator.
Everyone over the age of 50 can book a free guidance session on their retirement income options with Pensions Wise. For many people, it may be worth paying for advice from a regulated financial planner, who can set up a tax-effective plan that works for you. You can search for financial planners in your area at Unbiased.
Saga has partnered with HUB Financial Solutions, who can help you find the right annuity for you from the whole of market. If you take out an annuity using their service, Saga Money will earn a commission.
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