How do you intend to convert your pension pot into income when you retire? To some extent the answer depends upon how you intend to retire, which is increasingly a more gradual process.

Flexibility is normally more important for a phased retirement, as you will need to adjust your pension benefits according to the level of your earnings, as well as the arrival of the state pension.

How you draw your pension income will also depend upon

• the other income that you expect to receive in retirement;
• your attitude to risk; and
• the extent to which you want to use your pension as part of your estate planning.

At one end of the pension income spectrum is the annuity, which guarantees an income for life. Volatile investment markets have rekindled the appeal of fixed payments, while rising long-term interest rates have significantly improved annuity rates. At the other end is income withdrawal, which offers maximum flexibility and better estate planning benefits, but with investment risk replacing the annuity’s guarantee.

Falling between annuities and income withdrawals are a variety of other ways of drawing income. Combining different income methods can be a sensible option. For instance, you could use an annuity and add a flexible top up via income withdrawals.

To understand your options, the first step is to seek advice, well before you need the income to begin.

State pension age warning

The timing of the move to a state pension age of 68 remains unclear. At the end of March 2023 the government once again deferred the decision, this time until “a further review within two years of the next Parliament”.