How to invest your pension after taking money out

If you have a defined contribution pension, from age 55 (rising to 57 from April 2028) you can usually decide how and when you want to access your money. 

You can find out your pension type using our tool or ask your provider. 

For example, you can normally choose to: 

• take one or more lump sums, with 25% of each amount paid tax-free , or 
• take a tax-free lump sum (up to 25% of your pension), and:  
  • leave the rest invested in a flexible pension drawdown plan until you need it  
  • set up a flexible income from a drawdown plan that you can stop or change at any time  
  • convert the rest into guaranteed income by buying an annuity
  • take the rest as one or more lump sums.  

If your provider does not offer the option you’d like, you could consider transferring your pension to one that does.  

Unless you plan to take the whole amount in one go or use the full amount to buy an annuity, part of your pension will stay invested.  

This means it can continue to benefit from investment growth until you need it, though the value can rise and fall.

You can usually choose to use your provider’s ready-made investments, pick your own investments or pay a financial adviser to advise you – this guide explains these options.    

Choosing how to take your pension is an important decision – it could affect your income for decades to come. 

For more information on all your options, see our guide What can I do with my pension pot?  

We also offer free Pension Wise appointments to help explain the different ways you can take your money. 

Your pension has been invested from the day it started, so little will change after you take money out. The main difference is you now need to decide how to invest it. 

If you’ve never managed your pension or chosen the investments before, it’s likely your pension provider has done it for you.

This normally means your money is invested in your scheme’s default or ready-made fund, which uses investments that meet the needs of most scheme members. 

This is often known as lifestyling and typically means your pension provider:  

• uses riskier investments when you’re younger – these are likely to grow over long time periods but might go up and down in the short-term 
• moves your money to more stable investments as you near your retirement age, like government bonds and cash. 

To find out how your pension is currently invested, you can usually check your latest pension statement or log in to your online account.  

The information is often listed under ‘funds’, ‘investment options’ or ‘where your money is invested’, with a factsheet for each fund. 

This can help you to understand the range of funds and level of risk your pension currently uses.  

For more information on how pension investing works, see our guide How to choose your own pension investment options.

Before you’re ready to retire, the main pension investment goal is usually to grow the value as much as possible. But after you take money out, this might change. 

For example, you might want to focus on protecting the amount that’s been built up by only aiming to grow it in line with inflation (so it does not lose value) and avoid any potential large rises and falls. 

You can either decide on your own strategy or pay a financial adviser to do this for you. 

The right investment strategy for you will depend on your situation and how you plan to use your pension. This means your strategy might need to be adapted if your plans or circumstances change over time. 

For example, if you plan to take some money now and the rest as a regular income a few years later, you might want to focus on growing your pension’s value further – with some risk that the value might rise and fall in the short-term. 

But if you want to take a regular pension income that you’ll rely on, you might want to focus on protecting the value by choosing investments that are less likely to rise and fall sharply. 

If you have multiple pensions and want to use them in different ways, you might choose a different investment strategy for each one. 

When deciding how best to invest your pension, always estimate: 

• how much retirement income you need to cover your essential costs and provide the lifestyle you’d like – our Budget planner can help you do this 
• how long the income needs to last – you can check your average life expectancyOpens in a new window using the Office for National Statistics’ calculator
• when the State Pension can help to top-up your income – you can check your State Pension forecastOpens in a new window on GOV.UK.

This might mean your pension needs to give you different levels of income at different times.  

For example, you might want to:  

• take a regular amount so you can afford to reduce your hours at age 60 
• increase the amount so you can fully retire at age 65 
• reduce the amount after you can claim the State Pension. 

Always plan to have more than you might need, especially as future costs will usually be higher than they are today because of inflation. This can help to avoid the need to reduce your income if: 

• your pension falls in value  
• you live longer than expected – one in ten people will reach age 100 
• inflation rates increase. 

After you’ve calculated how much money you might need for the rest of your life, you can compare that figure to the current value of your pension. This should help you understand how much risk you might want to take to grow its value. 

A key part of any investment strategy is the level of risk to take. Investing in higher-risk funds (such as ones that mainly use company stocks and shares) will usually mean a greater potential for growth – but also for potential losses.  

Always consider your: 

• attitude to risk – how comfortable you are with your pension value going up and down over the short-term  
• capacity for loss or ability to handle losses – how well you could afford to live if your pension had a short-term fall in value. 

 To help, ask yourself: 

• Would I feel ok if my pension value kept rising and falling? 
• If my pension fell by 10 to 15% over a year, could I still afford my essential costs? 
• Will I have other income or savings to rely on, such as the State Pension? 
• Could I cut my costs or reduce spending for a while if needed? 

If any of your answers are ‘no’, you might want to consider a less risky investment approach. 

There are two main ways to invest your own pension: 

• use ready-made investment options, where the exact choice of investments are decided by the investment provider 
• create and manage your own portfolio of investments, where you decide what to invest in and when.  

Alternatively, you could pay a financial adviser to decide for you – including the option for ongoing management. 

The best option for you will often depend on how involved you want to be and your confidence and experience with investing.   

If you’d prefer not to select individual funds yourself, check if your pension provider offers ready-made investment options. This can help simplify your investment decisions. 

If they do, make sure they’re suitable for you and your goals by asking them to explain how they work and who they’re designed to help.    

If you’re using drawdown to access your pension, you might also have the option of four different investment pathways.

These are a type of ready-made investment that are designed to help if, in the next five years, you plan to either: 

• leave your remaining pension untouched 
• convert your pension into guaranteed income by buying an annuity  
• start taking a flexible income (either a regular amount or as and when needed) 
• take out all of your pension.  

The investment pathway provider will choose and manage the choice of investments based on the goal you’ve selected. 

You can use our Investment pathways comparison toolOpens in a new window to help you shop around and compare providers.  

If you’re comfortable with the responsibility of managing your own pension investments, you can usually:  

• choose individual investments yourself 
• invest in funds – these hold investments in multiple companies and are often looked after by professional managers 
• pay a financial adviser to help you choose. 

You need to make sure you understand the risk levels of each type of investment and the importance of a diversified portfolio – if one type of investment goes down, the others will hopefully stay the same or go up. 

You’ll also need to consider how and when you plan to take an income from your pension. For example, you can usually either: 

• sell some of the investments you own 
• use investments that give you an income – such as income funds, multi-asset funds or dividends from company shares 
• keep a small amount of your pension as cash – such as a cash account, term deposit account or cash fund. 

It’s often a good idea to plan on using a mix of all three to help make sure your pension lasts your full retirement. 

For example, if markets are down, you might want to take income from your cash account so you do not need to sell investments when prices are low – which can affect the overall value of your pension.  

But if markets are high, you might find the income from funds mean you can take less in other ways. You could also consider selling investments while prices are high to top up your cash account.  

If you’re worried about keeping your pension invested and its value rising and falling, remember that even keeping it as cash is a risk. 

This is because costs usually rise over time, so your pension needs to grow at or above the rate of inflation to stop it being worth less in the future. 

For example, goods and services that cost £50 in 1996 would cost over £100 now. This means: 

• cash held in a pension would have half the buying power as it did 30 years ago 
• you might need to take out double the amount you’d planned to just to afford to live 
• your pension might run out earlier than you’d planned. 

You can use the Bank of England’s Inflation calculatorOpens in a new window to see how the value of money has changed over time. 

For more information, see our guide Inflation – what does it mean for your savings?.

When you’ve decided how you’d like to invest your pension, your pension provider will normally have an online platform or mobile app you can use to choose your options, or you can call them. 

You can also pay a financial adviser to help set up and manage your investments. 

If your current provider does not offer the range of investment options you’d like, you could consider transferring your pension to one that does.  

Just be aware that you could lose valuable benefits by moving your pension and it usually cannot be undone, so always check carefully.  

For more information, see our guides: 

• Should I transfer or combine my pensions? 
• How to find the best deal when taking your pension.

How much and how often you take money from your pension will determine how long your income might last. Always plan carefully and be prepared to make changes based on how your investments perform. 

If you plan to take a regular income for the rest of your life, think about limiting your withdrawals so your pension will last for at least 20 to 30 years.

For example, if your pension is worth £100,000 and you want it to last 25 years, you could afford to take around 4% of its value each year (£100,000 divided by 25). This would give you an annual income of around £4,000 to start with.

Diversified investments are expected to beat savings over the long-term, but the value will typically rise and fall on a daily basis. 

This can mean there might be periods where the value of your pension rises or falls sharply based on market changes and world events. These periods and any recovery of losses could last days, weeks, months or years. 

This means you need to factor this into your investment approach and planned withdrawals, so downturns do not affect you as much and your pension has time to recover. 

If you choose diversified investments, you’ll usually have different types you can decide to sell. This means you might be able to time which ones you use to give you an income. 

For example, if one type of investment has fallen in value more than another, you might want to sell units in the highest value one. 

This might also help you to decide on an investment strategy. For example, you could:

• hold an amount that might last you for the next 1 to 3 years in lower risk funds that are less likely to rise and fall sharply
• take more investment risk with the rest. 

When you want to take money from your pension, you’ll often need to sell some of your investments – such as units in funds.  

As investments rise and fall in value, the amount you’ll need to sell will typically change each time. 

For example, to withdraw £500 from your pension, you’d need to sell: 

• 500 units if each unit is worth £1 
• 1,000 units if the value drops to 50p per unit.  

Taking money while markets are low can mean it’s harder for the value of your pension to recover if markets rise. This is because there are fewer investments or units left to give you an income later. 

This can make a big difference to how long your pension will last, especially if it happens in the early years of your retirement.  

Always review the value of your pension and the amount you’re withdrawing on a regular basis. This helps you to make any changes to keep you on track.  

For example, if your pension has grown more than expected, you might be able to afford to increase the income you’re taking. But if it’s gone down, you might want to take a lower amount until the value starts to recover.  

Aim for a review at least once a year, though more frequent reviews might help you spot any early warning signs of potential trouble ahead.

If you use a financial adviser to manage your pension investments, ask them to explain how often they’ll review your retirement plan.

As retirement often lasts many years, you might find your situation and plans change.  

For example, a strategy you chose before you fully retired to continue growing your pension might not be suitable if you now rely on the income. 

When reviewing your pension value and withdrawals, also consider if: 

• your attitude to risk and ability to handle any losses has changed 
• you need to change your investments to match your current goals. 

Just be aware that you might lock in losses if you sell or change investments while the price is low. 

How you choose to take and invest your pension can affect how comfortable your retirement is, so it’s a big responsibility to take on. 

A regulated financial adviser can create a personalised retirement plan for you, based on information such as your health, finances, goals and attitude to risk. 

This usually includes making sure any product suits your needs, recommending investments to use and planning withdrawals to avoid your pension running out.  

You can normally get one-off advice or choose to pay an adviser to manage your pension on an ongoing basis. This typically means your plan is reviewed at least once a year. 

For help finding a regulated financial adviser, see our guide How to find a pension or retirement adviser.