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By the time you reach retirement age, you’ve probably spent years “accumulating” pension wealth and planning for a comfortable lifestyle after you leave work behind.
You might have given less thought to how you’ll move from saving to spending when you retire. This process is known as “pension decumulation”, and it requires careful consideration and planning if you want to maintain a sustainable retirement income.
Just as a mountaineer’s task is only half done when they reach the summit, building a healthy pension pot is merely the first stage of retirement planning. The descent – or decumulation – requires just as much preparation and care.
However, this aspect of financial planning is often overlooked. New research published by Financial Planning Today reveals that the number of “unsustainable” pension withdrawals hit a record high in 2024/25. The findings show that nearly half (45%) of all pension pots are being withdrawn at 8% or higher, which is almost twice the recommended rate.
Unfortunately, taking too much from your pension too soon could increase the risk that you won’t be able to sustain the retirement lifestyle you desire or that you’ll run out of funds in later life.
Keep reading to learn how to use a pension decumulation strategy to avoid this common mistake and turn your retirement savings into a sustainable income.
There are 3 main types of pension decumulation to consider
Your pension decumulation strategy determines how you access and use your pension savings. In other words, it’s a plan for turning your pension pot into a retirement income.
In the UK, there are 3 main pension decumulation options to choose from:
Flexi-access drawdown
This allows you to keep your pension invested and draw money from it as and when you need it during retirement.
You can usually take up to 25% from each of your pensions as a tax-free lump sum, provided that the total withdrawn across all your pensions does not exceed the standard Lump Sum Allowance, which is £268,275 in the 2025/26 tax year.
An annuity
You could use part or all of your pension fund to buy an annuity that provides a guaranteed income for a fixed period (typically until the end of your life).
Lump sum withdrawals
Instead of moving your pension into drawdown or using it to buy an annuity, you could take one-off lump sums directly from your pension. Remember that any withdrawals above 25% of the value of your pension pot will usually be taxed as income.
Each type of pension decumulation comes with potential advantages and disadvantages, so it’s worth talking through your options with a financial planner. You could also adopt a hybrid approach by combining two or more of these strategies to create a tailored plan that meets your specific needs and goals.
Read more: Why financial stability could be the secret to a happy retirement
3 practical tips for mastering pension decumulation and building a sustainable retirement income
Planning ahead is crucial for effective decumulation. Here are three tips for getting started:
1. Assess your retirement income needs
Before you can plan how to make your pension wealth last, you’ll need to understand what your spending in retirement might look like.
The Retirement Living Standards by Pensions UK suggest that a single person needs an annual income of £43,900 to live a “comfortable” retirement. A couple would need £60,600 to achieve the same standard of living.
These figures provide a helpful starting point for calculations, but you’ll also need to factor in your specific circumstances, needs, and goals. For example, if your priority is to retire early or travel the world for an extended period, your retirement fund may need to stretch further than if you worked for longer or lived a more modest lifestyle.
It’s also crucial to consider how long your retirement might last. If you’re fit and healthy with a longer-than-average life expectancy, your retirement funds may need to last 30 years or more.
Remember too that your income needs in retirement may change over time. For example, inflation could increase the cost of essentials, such as food and utilities, or you might face higher medical and care costs in later life.
2. Plan how to withdraw funds from your pension tax-efficiently
In 2025/26, you can usually access your private pensions when you reach 55 (this will rise to 57 from April 2028). However, it’s important to understand the tax implications of making withdrawals before you start dipping into your pension.
For example, you might decide to carry on working in some capacity after you retire. However, if you start drawing flexibly from your pension, this could trigger the Money Purchase Annual Allowance (MPAA).
The MPAA reduces the amount of tax-efficient pension contributions you’re allowed to make in a single tax year. As such, you might not be able to grow your pension pot as much as you’d like.
You could avoid this by planning how and when to draw on your pension. This might include only taking your 25% tax-free lump sum and leaving the rest invested (as this would not usually trigger the MPAA) or buying a guaranteed lifetime annuity.
3. Regularly review your plan with the help of a financial planner
Decumulating your pension fund is unlikely to be a one-off task. It’s generally an ongoing process that requires regular reviews and adjustments to accommodate changing needs and circumstances.
Understanding what your finances might look like many years from now and navigating complex or changing tax rules could be challenging and stressful.
Our financial planners have the experience, knowledge, and resources to help you make a seamless transition from saving to spending. By using sophisticated cashflow modelling software, we can give you a clear picture of your retirement income needs and how they might change in different scenarios.
As such, seeking financial advice could help you avoid common decumulation mistakes – such as taking too much too soon – and build a sustainable income that allows you to enjoy the lifestyle you desire for as long as your retirement lasts.
Get in touch
If you’d like support turning your pension savings into a sustainable retirement income that allows you to build the future you want, we can help.
To learn more, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Approved by Best Practice IFA Group Ltd on 14/11/25