How to Make Your Pension Go Further Before and During Retirement
- Brian Pusser
- 7 days ago
- 7 min read
Published 1 September 2026
Are you approaching retirement but still working?
If so, one of the biggest financial decisions you will make is how and when to access your pension savings.
Many people assume retirement means taking an annuity or withdrawing their tax-free cash immediately. However, pension freedoms have created several alternatives that may provide greater flexibility and, with careful planning, help your pension last longer.
The right approach will depend on your income, tax position, investment plans, health, family circumstances and the level of security you need.
Here is a practical overview of the main points to consider.
What choices does Pension freedom gives you?
Most people can currently access their pension from age 55, although this is expected to increase to age 57 from April 2028.
Once you reach the minimum pension age set by your pension scheme, you will generally have several options:
Purchase an annuity, providing a guaranteed income for life
Use pension drawdown, leaving funds invested while taking withdrawals
Take an uncrystallised funds pension lump sum, commonly known as a UFPLS
Combine different options across different pension schemes
An annuity can provide valuable certainty. You know how much income you will receive and, depending on the type of annuity, it can continue for the rest of your life.
However, annuity rates and personal circumstances differ considerably. Some people prefer greater control over their money and the opportunity to leave funds invested for future use or inheritance.
That is why flexible drawdown and UFPLS arrangements are increasingly popular.
How does pension drawdown work?
With pension drawdown, you can usually take up to 25% of the pension fund tax-free, subject to the available allowances and your personal circumstances.
The remaining funds stay invested and can be withdrawn when required. Any withdrawals from the taxable portion are treated as income and may be subject to Income Tax.
The key benefit is flexibility. You do not have to withdraw everything immediately, and the funds can potentially continue to grow within the pension environment.
However, investment values can fall as well as rise. Taking too much too soon can also increase the risk of running out of money later in life.
Drawdown is therefore not simply a tax decision. It is also an investment and cash-flow decision.
How does UFPLS work?
A UFPLS payment is taken directly from an uncrystallised pension fund.
Normally:
25% of each payment is tax-free
75% is treated as taxable income
For example, if you withdraw £20,000 using UFPLS, £5,000 may be tax-free and £15,000 may be subject to Income Tax.
UFPLS can be useful where you do not need a large tax-free lump sum at the beginning. It allows you to take smaller amounts over time while keeping the remaining pension invested.
However, you generally cannot mix and match drawdown and UFPLS from the same pension fund. If you have several pension schemes, you may be able to use different methods for different funds.
This is why reviewing your pension arrangements before retirement can be so valuable.
Is contributing extra to your pension before retiring beneficial?
Many people stop contributing to their pension once retirement is approaching. That is not always the most tax-efficient decision.
Pension contributions can still attract tax relief at your highest marginal rate.
For example, for a higher-rate taxpayer, a gross pension contribution of £10,000 may have an effective personal cost of £6,000 after tax relief, depending on their circumstances and how the contribution is made.
For 2026/27, the standard annual allowance is £60,000 of gross pension contributions, although individual circumstances can affect the amount available.
You may also be able to use unused annual allowances from the previous three tax years under the carry-forward rules.
This means someone approaching retirement may have more scope to contribute than they initially realise.
Additional contributions can be particularly useful where:
You are still working and paying Income Tax
You have surplus income or capital
You have unused annual allowances
You expect to be a higher- or additional-rate taxpayer
You want to increase the amount available for future retirement income
The tax relief added to the contribution can increase the pension fund before investment growth is considered.
However, contributions should not be made purely for tax relief. You must also consider access rules, investment risk, charges and whether you may need the money elsewhere.
Be careful of pension recycling rules
There is an important trap for anyone planning to take tax-free cash and then make larger pension contributions.
HMRC’s pension recycling rules are designed to prevent people from taking a tax-free lump sum and reinvesting it into a pension simply to obtain tax relief a second time.
The rules can apply where:
A tax-free pension lump sum is taken
The lump sum, together with tax-free cash taken in the previous 12 months, exceeds £7,500
Pension contributions are significantly increased because the lump sum was taken
The additional contributions exceed 30% of the tax-free cash
The reinvestment was pre-planned
If the rules apply, the tax-free cash may be treated as an unauthorised payment, potentially creating a significant tax charge.
The most obvious way to reduce the risk is to avoid taking tax-free cash shortly after making substantially increased pension contributions. In some circumstances, allowing two years to pass may be appropriate, but the rules are fact-specific.
Do not assume that describing the arrangement differently will avoid the legislation. The intention and overall circumstances matter.
This is an area where professional advice should be obtained before any action is taken.
Could pension funds be divided into separate pots?
If you currently have one large pension fund and want to increase contributions while retaining flexibility, it may be worth discussing whether the fund can be divided into separate segments or schemes.
For example, one fund could receive additional contributions, while another remains available for future tax-free cash planning.
This will not automatically solve every issue, and it must be structured correctly. But having separate funds may provide more flexibility when deciding which withdrawal method to use.
Your pension provider or financial adviser can explain whether segmentation is available and how it would work.
Can small pension pots provide flexibility?
The small pot rules may also be useful in the right circumstances.
Where a pension pot does not exceed £10,000, it may be possible to take it as a small pot. This can normally be done for up to three personal pension pots, regardless of the total value of your other pension savings.
Small pots are taxed broadly in the same way as UFPLS payments:
25% is normally tax-free
75% is normally taxable as income
One advantage is that taking a small pot does not trigger the Money Purchase Annual Allowance. This may be important for someone who wants to continue making pension contributions after accessing part of their pension.
Three small pots could potentially provide access to up to £30,000, subject to the relevant rules and the value of the funds.
However, keep an eye on investment growth. If a fund grows above £10,000, it may no longer qualify as a small pot. Your pension provider should confirm the available options.
Managing withdrawals after retirement
Once you begin taking taxable pension income, managing your total income becomes increasingly important.
For 2026/27, keeping income below the £50,270 higher-rate threshold may help avoid higher-rate Income Tax, depending on your circumstances.
It may also allow you to retain the full £1,000 Personal Savings Allowance available to a basic-rate taxpayer.
This does not mean you should avoid taking money you genuinely need. It means you should consider whether withdrawals can be spread across different tax years.
Taking a large pension withdrawal in one year may push you into a higher tax band unnecessarily. Taking smaller withdrawals over time could produce a better overall result.
Coordinate pension income with capital gains
Pension withdrawals are only one part of your tax position.
You may also have:
Investment income
Savings interest
Dividend income
Rental income
Capital gains from selling investments
The timing of these different sources can affect the amount of tax you pay.
Capital gains are generally taxed at 18% within the basic-rate band and 24% above it, subject to the relevant rules and allowances.
This means reducing a pension withdrawal in a year when you realise substantial capital gains may help keep more of those gains within the lower rate.
For example, if reducing a pension withdrawal allows £20,270 of additional capital gains to fall within the basic-rate band, the potential tax saving could be approximately £1,216 at a 6% rate difference.
The exact result will depend on your income, gains, allowances and personal circumstances.
Transfers between spouses or civil partners may also help use both individuals’ allowances and tax bands, provided the transfer is genuine and properly planned.
The main lesson
There is no single “best” way to take a pension.
The right strategy may involve:
Taking a guaranteed annuity income for essential spending
Using drawdown for flexible income
Taking smaller UFPLS payments
Making additional pension contributions before retirement
Using carry-forward allowances
Avoiding pension recycling problems
Using small pension pots carefully
Coordinating pension withdrawals with savings, investments and capital gains
The most important point is to plan before taking the first withdrawal.
Once pension benefits have been accessed, some of the available options may change. A rushed decision could create unnecessary tax, restrict future contributions or reduce the amount available later in retirement.
Your pension is not just a pot of money. It is a long-term tax and income-planning tool.
If you are still working and approaching retirement, now is the time to review:
How much income you actually need
Which pension funds you have
Whether further contributions are worthwhile
How much tax-free cash to take
Whether drawdown, UFPLS or an annuity is appropriate
How pension withdrawals interact with your other income
Good retirement planning is not about taking the maximum amount as quickly as possible.
It is about using your pension in a way that supports your lifestyle, manages tax and gives your money the best chance of lasting.
Make informed decisions today to help your pension provide greater financial security throughout retirement.
Are you approaching retirement and unsure how to make your pension last?
The right strategy can help you manage tax, create a sustainable income and keep your options open.
Contact us today to arrange a personalised pension review and discover how to make your retirement savings work harder for you.
Pension and tax rules can change. Your options will depend on your individual circumstances. Seek professional financial advice before making any decisions.
This post is for general information only and does not constitute financial advice. Pension and tax rules can change, and individual circumstances vary. Anyone considering pension contributions or withdrawals should speak with an appropriately qualified financial adviser and tax professional.
