Should I take the tax free cash and pension or go for drawdown?

01 February 2022

Question by Alex

I have a final salary pension due now. Should I take the tax free cash and pension or go for drawdown? How do you judge the pension? I'm 65 and the annuity rate is about 3% with 50% widow's.

Answered by Daniel Barrett

Hi Alex,

There is lots to consider here but I’ll cover a few of the key considerations. Please below:

- Taking the tax-free cash from your final salary scheme will depend on whether you need the capital or prefer/need the higher income. Your tax-free cash would effectively be lost if you opted to take the full pension.

- The income from your final salary scheme will be guaranteed for life and index-linked so the income will rise over time to provide some protection against inflation.

- In contrast, drawdown can see your pension pot increase if investments do well, but you also run the risk of it falling in value and you could run out of money before you die. Drawdown is therefore riskier than taking the final salary pension.

- Drawdown is more flexible as you can vary the level of income you take from your pension and when you take it.

- Any money remaining in a drawdown pot can be left to your beneficiaries when you die whereas it is likely that only the widow’s pension would be payable from the final salary pension.

Judging the final salary pension would require a comparison against the income you could get by purchasing an annuity on the open market. It is extremely likely your current scheme would provide a higher income than an equivalent annuity.

More often than not it is more appropriate to retain the final salary pension, however, there are some occasions (such as when the member is in ill-health) where transferring to a personal arrangement may make sense.

If you wanted to consider opting for drawdown and the cash equivalent transfer value of your final salary pension is over £30,000, you are required to obtain specialist advice from a suitably qualified adviser. This will help to give you information on the implications of transfer, and an assessment of whether a transfer is suitable for you.

If you need some additional help, the government’s Pension Wise service offers free guidance which can help you understand your options and the factors you need to consider in more detail.

I wish you the best of luck in making your choice.

Kind regards,


Answered by

Daniel Barrett

Financial Planner

I’m a Financial Planner specialising in investments, pensions & retirement planning, and inheritance tax planning. I love working with clients to answer all their important financial questions.