Blog » Unlocking retirement: The pros and cons of pension options at 55

Unlocking retirement: The pros and cons of pension options at 55

May 20, 2024
The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.

Picture this: you’ve just celebrated your 55th birthday, and amidst the well-wishes and festivities, a thought crosses your mind – “What are my retirement options now that I’ve hit this milestone?” Well, buckle up, because we’re about to embark on an informative and engaging journey through the world of pensions at 55.

As a UK pension specialist, we’re here to guide you through the labyrinth of retirement options available to you at this pivotal age. We’ll explore the pros and cons of each choice, helping you make informed decisions that align with your unique circumstances and pension wishes. So, let’s dive in and unlock the secrets to a fulfilling retirement!

The magic age of 55

55 is more than just a number – it’s a gateway to a world of pension possibilities. Thanks to the government’s Pension Freedoms legislation, introduced in 2015, most people with eligible schemes can now access their pension savings from the age of 55. This is set to increase to 57 in 2028, so if you’re approaching this age, now is the perfect time to explore your options.

Take Sarah, for example. She’s been diligently saving into her personal pension for the past 30 years, and now that she’s turned 55, she’s eager to understand what she can do with her hard-earned savings. Luckily, our comprehensive pension options at 55 guide is here to help her navigate this exciting new chapter.

Understanding pension types

Before we delve into the options available to you at 55, it’s crucial to understand the different types of pensions out there, and which ones you have. Generally, pensions fall into two categories: personal and private pension plans, and workplace pension schemes.

Personal pensions, such as SIPPs (Self-Invested Personal Pensions), are set up by you as an individual, giving you greater control over your investments. On the other hand, workplace pensions are set up by your employer and may include schemes like group personal pensions and defined contribution occupational schemes.

It’s important to note that not all pensions can be accessed at 55. For instance, the State Pension age is currently 66, and some public sector pensions have protected pension ages. It’s always best to check with your pension provider about their specific terms and conditions.

Your pension withdrawal options at 55

Now, let’s get to the juicy part – what can you actually do with your pension savings once you hit 55? Here are the main options available:

Tax-free cash lump sum

With an eligible scheme, you can withdraw up to 25% of your pension pot as a tax-free lump sum, known as a pension commencement lump sum (PCLS). This can be a tempting option, but it’s essential to consider the long-term impact on your retirement income. Releasing pension money early is not right for everyone as it will leave you worse off in retirement.

Flexi-access drawdown

Flexi-access drawdown allows you to keep your savings invested in your pension while withdrawing income as needed. This option provides greater flexibility, but it also comes with the risk of your investments underperforming or running out of money too soon.


An annuity is a financial product that provides a guaranteed income for life. You can use some or all of your pension pot to purchase an annuity from an insurance company. While this option offers security, annuity rates can be low, and you may lose out on potential investment growth.

Mixing and matching

Who says you have to choose just one option? You can mix and match the above choices to create a retirement income strategy that suits your needs. For example, you could take your 25% tax-free cash, use a portion to buy an annuity, and leave the rest invested in a drawdown plan.

Key considerations before accessing your pension at 55

While the prospect of tapping into your pension savings at 55 may be exciting, it’s crucial to weigh the pros and cons carefully. Here are some key factors to consider:

  • Early withdrawals will leave you worse off in later retirement
  • Large lump sums or excessive income can result in significant tax bills (tax treatment depends on individual circumstances and is subject to change)
  • Your investments will need active management to ensure they align with your changing needs
  • You may lose valuable guarantees, such as those offered by final salary schemes
  • Your future income needs may change, so it’s important to plan ahead

Take John, a 55-year-old marketing executive, as an example. He’s been dreaming of a round-the-world trip and sees his pension as the perfect funding source. However, after speaking with a financial advisor, John realises that withdrawing a large lump sum now could jeopardise his long-term retirement income. Instead, he opts for a more balanced approach, taking a smaller tax-free lump sum and keeping the rest invested in a drawdown plan.

Avoiding common mistakes

Navigating the world of pensions can be daunting, and it’s easy to make mistakes that could cost you dearly in the long run. Here are some tips to help you avoid common pitfalls:

  • Don’t rush into withdrawals – take the time to understand all your options
  • Shop around for the best annuity rates, as they can vary significantly between providers
  • Understand your current scheme before transferring to a new one
  • Seek regulated financial advice to avoid costly errors
  • Have a clear plan for any withdrawals and a strategy for managing your remaining savings

Beyond 55: other options to consider

While accessing your pension at 55 may be tempting, it’s not the only option available to you. Here are some alternative strategies to consider:

  • Defer drawing your pension to allow more time for growth
  • Make additional pension contributions to boost your savings
  • Consolidate old pension plans to simplify management and potentially reduce fees
  • Develop a 5-10 year financial plan to optimise your pensions, savings, and assets
  • Explore tax and estate planning to minimise liabilities and protect your wealth

The value of regulated financial advice

With so many options and considerations, it’s no wonder that many people feel overwhelmed when it comes to their pensions. This is where regulated financial advice can be invaluable. A qualified pensions expert can help you:

  • Understand your unique situation and retirement goals
  • Avoid expensive mistakes and pitfalls
  • Save time and effort navigating the complex world of pensions
  • Make informed decisions that align with your needs and aspirations
  • Provide ongoing support and management to keep your pensions on track

Your next steps

If you’re approaching 55 and considering your pension options, the first step is to arm yourself with knowledge. Our pension options at 55 guide is a great place to start, providing comprehensive information on the choices available to you.

To take things a step further, why not request your free pension information pack? Simply fill in our online form, and we’ll send you a wealth of insights into the pension freedoms and details on how a no-obligation pension check could benefit you.

Remember, your retirement is a journey, not a destination. By understanding your options, seeking expert advice, and making informed decisions, you can unlock the retirement you’ve always dreamed of. So, what are you waiting for? Take control of your pension today and start planning for the future you deserve.

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