One of the biggest questions I hear from clients approaching retirement is:
“Should I take the higher monthly pension income, or reduce it to take a larger tax-free lump sum?”
On the surface, it sounds like a numbers decision. But in reality, it’s a lifestyle decision.
Defined Benefit Pensions (Final Salary or Career Average)
If you’re part of a defined benefit pension scheme, you’ll usually be given a choice:
- An income for life (often inflation-linked), with a standard tax-free lump sum.
- Or a reduced income in exchange for a larger tax-free lump sum.
The income is guaranteed, which is hugely valuable, but the choice between more income or more cash up front depends on what matters most to you.
Ask yourself:
- Do you need money now for things like clearing debt, helping family, or home improvements?
- Would the reduced income still give you enough to live comfortably each month?
- Do you value the certainty of guaranteed income more than flexibility?
Defined Contribution Pensions
If you have a defined contribution pension (built up through you and your employer paying into a pot), your options are broader:
- Take up to 25% of your pot as a tax-free lump sum.
- Buy an annuity for guaranteed income.
- Keep it invested and draw flexibly (drawdown).
- Or use a mix of the above.
Again, the “right” answer depends on you.
💭 Do you want certainty with a guaranteed income for life?
💭 Or flexibility to adjust your income as your needs change, even if it means taking on investment risk?
💭 Would a lump sum now make a meaningful difference, such as paying off your mortgage or supporting your children?
Key Factors to Consider
When deciding between income or a lump sum, it helps to think about:
- Life expectancy: How long might you need your money to last?
- Immediate needs: Do you need a large sum now, or is steady income more important?
- Risk tolerance: Are you comfortable with investment risk, or do you prefer certainty?
- Investment knowledge: Do you want the control of managing drawdown, or the reassurance of a set income?
Why It’s About More Than Just Numbers
It’s easy to focus on the figures, but really this comes down to peace of mind.
✨ Do you want to know exactly what income you’ll have each month, for life?
✨ Or would you prefer the flexibility to adjust and adapt, even if that means more responsibility?
There’s no one-size-fits-all answer. The best choice is the one that supports the lifestyle you want in retirement - holidays, family time, helping your children, and feeling secure.
How Willow Tree Helps You Decide
At Willow Tree Financial Services, we don’t just show you numbers on a page. We:
✔️ Explore your whole financial picture - pensions, savings, property, and family commitments.
✔️ Talk about your lifestyle goals and what “comfortable retirement” means to you.
✔️ Use cashflow modelling to show what each option could look like in real life.
✔️ Help you make a calm, confident choice that gives you clarity and peace of mind.
Your retirement should support the life you’ve worked so hard for - not cause you stress.
Ready to Explore Your Pension Options?
If you’re approaching retirement, now is the perfect time to review your options and get clear on the best path for you.
Book your retirement planning consultation today and take the next step with confidence.
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At Willow Tree Financial Services, we offer personalised advice on Financial Planning, Mortgages, Investments, Pensions, Personal & Business Protection, and Wills, Trusts & Estate Planning - all tailored to your individual goals and circumstances.
Call us on 01323 436680, get in touch here, or book an appointment here to get started.
We’re based in Polegate, East Sussex, and support clients across the South East and beyond.
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The value of investments and pensions, and any income they produce, can fall as well as rise. You may get back less than you invested. The Financial Conduct Authority does not regulate wills, trusts, estate planning, and lasting power of attorney. Will writing is not part of the Quilter Financial Planning offering and is offered in our own right. Quilter Financial Planning accept no responsibility for this aspect of our business.
Approver Quilter Financial Services Limited Sept 2025
