SIPP Benefits Guide
A plain-English guide to your options when it comes to taking money from your SIPP — including drawdown, lump sums, annuities, and what happens to your pension when you die.
Important information
This guide is for educational purposes only. Invinitive does not provide financial advice or make personal recommendations. If you are unsure about your options, please seek independent regulated financial advice or use the government's free guidance service, MoneyHelper (formerly Pension Wise) at moneyhelper.org.uk/pensionwise or call 0800 138 3944.When can you take benefits?
Your SIPP gives you the flexibility to choose when you start taking benefits, from age 55 (rising to 57 from 6 April 2028). You are not required to take all your benefits at the same time or at a fixed retirement age.
When the time comes, you have three main options — and you can use a combination of them:
Tax-free cash
If you choose drawdown or an annuity, you can usually also take a tax-free lump sum — known as a pension commencement lump sum (PCLS). This is normally 25% of the value of the fund being used to provide your benefits, subject to the lump sum allowance.Your three benefit options explained
With drawdown, your pension fund stays invested after you retire. You can take as much or as little income as you like — there are no set limits on what you can withdraw. Your pot continues to grow (or fall) with the markets.
You can usually take up to 25% of the amount you move into drawdown as a tax-free lump sum first. The rest stays invested and any income you draw is taxed as normal income.
Key considerations
- Keeps your money invested for continued potential growth
- Flexible — take more or less income as your needs change
- You can buy an annuity at any point in the future
- Unused funds can be passed on to beneficiaries on death
Risks to be aware of
- Investment values can fall as well as rise — your pot is not guaranteed
- Drawing too much income can mean your pot runs out before you die
- Once in flexi-access drawdown, your annual pension contribution allowance drops to £10,000
- There is no cross-subsidy benefit from other annuitants (as you would get with an annuity)
You can take lump sums directly from your uncrystallised (untouched) pension fund whenever you want. Each lump sum is 25% tax-free, with the remaining 75% subject to income tax at your marginal rate.
This approach gives you flexibility to take money when you need it without formally "retiring" or setting up a drawdown plan first.
Key considerations
- Simple — take what you need, when you need it
- No need to set up drawdown or buy an annuity first
- Unused funds remain invested and can be left to beneficiaries
Risks to be aware of
- Large withdrawals in a short time can push you into a higher tax bracket
- Taking too much too soon may not be sustainable for the rest of your life
- Your annual allowance drops to £10,000 once you start taking taxable lump sums
An annuity converts your pension pot (or part of it) into a guaranteed income paid to you for life, no matter how long you live. You give your money to an insurance company and they pay you a regular income.
You can take up to 25% of the fund as a tax-free lump sum before using the rest to purchase the annuity. The income from the annuity is then taxed as normal income.
Annuity options include
- Level payments (fixed income)
- Escalating payments (rising over time)
- Joint life (income continues for spouse/partner after you die)
- Enhanced annuity (higher income if you have health conditions)
Risks to be aware of
- Once purchased, an annuity cannot usually be changed or cancelled
- A level annuity loses purchasing power over time due to inflation
- If you die early, the insurer typically keeps most of the remaining fund
- Delaying purchase may result in a higher annuity — or a lower one
Annuities are not available on the Invinitive platform
Invinitive does not offer annuities. If you wish to purchase a lifetime annuity, you would need to transfer your pension funds to an insurance company or annuity provider outside of the platform. You have the right to shop around using the open market option — you are not required to use any specific provider. A regulated financial adviser can help you compare annuity rates and options.Tax on pension payments
Pension income is taxed as normal income in the year you receive it, after your personal allowance. Here is how it works in practice:
Death benefits — what happens to your pension
One of the important benefits of a SIPP is that unused pension money can usually be passed on to beneficiaries when you die. The tax treatment depends on your age at death and whether the funds have been crystallised.
Death before age 75
- Beneficiaries can usually receive the pension fund free of income tax
- Can be paid as a lump sum or kept as drawdown for the beneficiary
- Uncrystallised funds and drawdown funds both generally pass tax-free within the lump sum allowance
Death at or after age 75
- Beneficiaries can still receive the pension fund
- Payments are taxed as income at the beneficiary's marginal rate
- Can still be kept in drawdown and taken as income over time
Keep your nomination up to date
Your pension does not automatically form part of your estate — the scheme trustees or administrators have discretion over who receives it. Keeping a nomination of beneficiary form up to date ensures your wishes are known. You can usually update this at any time.Lump sum allowances
There is a limit on the total tax-free cash you can receive across all your pensions over your lifetime. This is called the lump sum allowance.
Common questions
Important information
This guide is for educational purposes only and does not constitute financial or tax advice. Pension rules, tax rates and allowances are based on current UK legislation and may change in the future. Individual circumstances vary significantly and the right approach depends on your personal situation. Investments can fall as well as rise in value. You may get back less than you invest. We strongly recommend you seek independent regulated financial advice before making any decisions about your pension benefits.
Want to learn more or get guidance?
Use MoneyHelper's free, impartial pension guidance service, or find a regulated financial adviser who can advise you personally.