Pension options at the age of 55

Price Mann • November 24, 2021

Understanding your early-access pension options.

Despite remaining complex, pensions offer you far more flexibility from the age of 55 (rising to 57 from 6 April 2028) than was once possible.

If you are approaching 55, you might be feeling a twinge of trepidation or excitement that you could soon become “a pensioner” as this is the age at which you are allowed to access some pension savings.

For some it may not be a moment too soon.

The economic burden of COVID-19 has raised the spectre of redundancy for more people, while inflation is on the rise and interest rates remain low. Fuel shortages and empty shelves add to the general feeling of uncertainty, and some fear a deep recession.

Others might be more relaxed, and might not really be thinking of drawing any pension income for many years, but still interested to know the current state of play.

One thing’s for sure – there have been many rule changes since you began saving into a pension. There’s generally far more flexibility than there once was but, as you would expect with pensions, there’s also the same old complexity.

Here’s what you can and can’t do from the age of 55, along with the pros and cons of drawing money from this age.

Pensions you can access at 55

There are still several main types of pension, each with its own rules. Broadly speaking, though, you can take money from all of them when you turn 55. The exception is the state pension, which is not accessible until age 66 at the earliest.

For defined-contribution workplace pensions – ones which are based on contributions and growth over time – you should be able to access money from 55 with your employer’s permission.

For defined-benefit pension schemes – pensions which guarantee you a certain level of retirement income – some early access is possible, although you might lose valuable benefits.

You can also access any personal pensions at the age of 55, but you’ll need to check and understand whether penalties will apply.

The main options

Gone are the days when your only choice was some form of fixed income.

In fact, you may be able to do as much or as little with your pension pot as you wish. But whatever you decide, there will be tax and investment considerations.

The latest round of major changes, made back in 2015, permitted people to withdraw 100% of their personal pension pots from age 55. The general rule is 25% is tax-free, while the remainder is subject to income tax.

So for anyone with hefty pension savings, it is unlikely to be wise to withdraw it all at once from a tax perspective. Instead, the following options for accessing your pension are available.

Tax-free lump sum

The first thing that springs to mind for many is the availability of a 25% tax-free lump sum. It’s one of the big selling points of saving in a pension, given that tax relief is provided on the way in.

You may have it lined up to pay off a mortgage, to fund that dream holiday, for reinvestment or something else. If you face financial difficulty due to COVID-19, it could even be a lifeline.

Annuities

Buying an annuity is the traditional way of enjoying an income from a personal pension. You would take some or all of the money you had saved, pay it to an insurance company, and in return they would promise to pay you an income for the rest of your (and, if agreed, your partner’s) life.

It provides welcome certainty, but as life expectancies have risen, the value of the annual income is often perceived to be low. You can still do this, and for some it might appeal.

Income drawdown

The flexible alternative to buying an annuity is income drawdown, if your pension provider offers it.

This is when you keep your pension invested and take a taxable income from it – either from the natural income your investments generate or from capital within the pension. It gives you freedom, but unlike an annuity, it comes with no guarantees.

Early retirement from a company pension

If your pension is a company scheme, you might be permitted early access in return for a reduced annual pension income.

The pros of accessing at 55

There are so many moving parts to pensions that we can only talk very generally. These points are intended to spark a conversation with an expert, rather than for you to act upon them directly.

First of all, it is a massive plus that you have the freedom to access your pension from the age of 55. If you have a plan or a pressing need for the money, quite simply, it is on the table for you.

This freedom does have to be balanced against future need, and may come with a cost which we will cover in the cons section next.

Once you’ve factored in the tax-free sum, the pros are largely lifestyle-related. For example, you may be able to reduce your working hours if your pension income can top up a lower salary. Or you may be able to pay off your mortgage and decrease your personal overheads, achieving a better lifestyle that way.

Because of the level of flexibility, you can keep some or most of your pension invested, so that it continues to grow for later life, and you could carry on paying into a pension if your circumstances allow it later on.

What are the cons?

As with the pros, the cons to accessing your pension at 55 are general in nature, and might be able to be adequately managed with good retirement planning.

The first and most significant con is that taking cash now may increase your chance of running out of money later on. This is really important to understand, because later in life you may have no means of generating income, depending on your circumstances.

Not only are you taking what you have, but you’re also limiting the potential of your pension to benefit from compound growth. This may disproportionately affect its future value.

Taxes

The mainstream taxes you will need to consider are income tax and, indirectly, inheritance tax and capital gains tax.

After the tax-free lump sum is exhausted, any excess drawings will be taxed as income. Depending on the sums involved, this means you could be pushed up into a higher-rate bracket.

While capital gains tax will not come into play directly, it is worth remembering that a pension is a tax shelter in which your money is protected from this tax. If you are withdrawing money from a pension to make further investment, you might not get the same protection.

The same goes for inheritance tax, which pensions also offer useful protection against before the age of 75.

Pension rules

Then there are some targeted pension rules, which may or may not affect you.

The questions to be asking are: “How much are your pensions worth now and in the future?” and “Are you likely to want to make future pension contributions?”

The lifetime allowance is a total cap on the pension value you can accumulate in your lifetime, and currently stands at £1,073,100. You can exceed it, but there will likely be extra tax charges.

Withdrawing money from a pension at age 55 will trigger a test to see if these tax charges will apply at this point.

The annual allowance limits the amount you can pay into a pension each year. It is normally 100% of your pensionable earnings capped at £40,000. However, once you draw a taxable income directly from your pension, you may find yourself restricted by the money purchase annual allowance, which can reduce the cap to a flat £4,000.

Ask us about accessing your pension at 55.

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Managing risk in your investment portfolio

By Price Mann • September 17, 2025

Managing risk in your investment portfolio Tips for a balanced investment approach. Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions. The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice. Start with a clear plan Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities. Set your risk level in advance: Ask yourself two questions. Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)? Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn. Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills. Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk. Diversification: Spread risk across assets, regions and issuers Diversification reduces the impact of any single holding. Practical ways to diversify include the following. Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash). Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk. Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure. Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk. A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole. Use tax wrappers to reduce avoidable tax and trading frictions Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax. ISAs (individual savings accounts) Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000. Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged). ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost. Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know. Pensions (workplace pension, personal pension/SIPP) Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible. Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26). Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income). Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100. Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension. Personal savings: Interest allowances Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA. Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band). Dividends and capital gains outside ISAs/pensions Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively. The annual capital gains tax (CGT) exempt amount , £3,000 for individuals (£1,500 for most trusts). CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26. CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July). Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable. Bonds and cash: Interest-rate and inflation considerations Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon. Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve. Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation. Control costs and product risk Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses. Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core. Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news. Rebalancing: Why, when and how Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended. Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs) Frequency: Review at least annually. Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative). Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances. Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order. Safeguard cash and investments with the right protections FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing). FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls. Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date. Currency risk: When to hedge For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds. Behavioural risks: Keep decisions steady Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include: automate contributions (regular monthly investing), which spreads entry points write down rules (what you will do if markets fall 10%, 20%, 30%) separate spending cash from investments so you do not sell at weak prices to fund short-term needs use portfolio “buckets” in retirement. Retirement planning: Sequence-of-returns risk and withdrawals If you are drawing an income from investments consider the following. Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls. Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer. Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them. Putting it together: A repeatable checklist Confirm goals and time horizons. Check emergency cash (3-6 months). Map your target asset allocation. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate. Keep costs low: Prefer broad index funds/ETFs. Set rebalancing rules: Annual review + thresholds. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes. Get in touch if: you are unsure how to set or maintain an asset allocation you plan to draw income and want to coordinate wrappers and tax bands you expect large one-off gains or dividends and want to plan disposals or contributions you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently you are considering more complex investments. Wrapping up Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational. Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades. If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most. Important information This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser. If you’d like advice on managing your portfolio, get in touch.