Many Older UK Pension Schemes Still Limit Your Retirement Choices

Why many older UK pension schemes still don’t offer flexible drawdown — and what that means for Americans with UK retirement savings.

Modern pension freedoms transformed retirement planning, but many older UK pension schemes still don’t offer the flexibility people expect.

By Myles Davies

You’ve spent years building your pension. You’ve paid into it, watched it grow, and probably have a picture in your mind of how it will support your retirement.

Perhaps you want a regular income. Perhaps you want the flexibility to take money only when you need it while leaving the rest invested. Maybe your priority is taking your tax-free cash first and deciding on the rest later.

Whatever your plans, one thing is worth checking well before retirement: does your pension actually let you do what you want?

Who should read this?

This article may be particularly relevant if you:

• Have a UK workplace or personal pension.
• Live in the United States or are planning to retire there.
• Expect to use flexible drawdown in retirement.
• Haven’t reviewed your pension’s retirement options for several years.

Don’t assume your pension offers modern flexibility

Since the introduction of Pension Freedoms in 2015, many people assume every UK pension offers flexible drawdown. Surprisingly, that isn’t always the case.

Many older pension schemes still do not offer the full range of retirement options now available under Pension Freedoms. The problem is that most people never discover this until they’re preparing to retire, when changing course can become more complicated.

Sometimes there is no issue at all. Your pension offers everything you need and you can move into retirement exactly as planned.

But sometimes the flexibility you expected simply isn’t available.

Why limited options matter

Where a scheme doesn’t offer flexible drawdown, your retirement choices may be far more limited than you expected.

In some cases, this may mean taking benefits as a lump sum or purchasing an annuity. In others, the scheme may require you to transfer to another provider before more flexible retirement options become available.

Both approaches can be entirely appropriate in the right circumstances. The difficulty is that neither necessarily provides the flexibility many retirees now expect.

Taking benefits as a lump sum may make sense for smaller pension pots, particularly where simplicity is the priority. However, for larger pensions it can create unnecessary tax consequences and removes the opportunity to leave part of your retirement savings invested for future years.

An annuity sits at the opposite end of the spectrum. It provides the certainty of a guaranteed income for life, which remains attractive for many retirees, particularly as annuity rates have improved in recent years. However, it is generally an irreversible decision and, for people living permanently outside the UK—particularly in the United States—purchasing a new UK annuity can be more difficult because many providers restrict the countries in which they are willing to issue new contracts.

Neither approach necessarily reflects how many people now want to manage their retirement income.

Pension Freedoms changed retirement—but not every pension

Before April 2015, most people were expected to convert their pension into an annuity at retirement.

The introduction of Pension Freedoms fundamentally changed that.

Instead of being tied to a guaranteed income for life, savers could leave their pension invested, withdraw income when they chose through flexible drawdown, or take their tax-free cash in stages rather than all at once.

Those changes transformed retirement planning.

The FCA’s Retirement Income Market Data shows that, of the roughly 960,000 pension plans accessed in 2024/25, over a third entered drawdown while fewer than one in ten purchased an annuity. Flexible retirement has become the preferred option for many UK retirees.

However, Pension Freedoms changed what pension providers were allowed to offer—not what they were required to offer.

Many older workplace and personal pension schemes were never updated to include flexible drawdown. In many cases, providers chose not to modernise older schemes because doing so involved additional administration, technology and regulatory costs, instead requiring members who wanted greater flexibility to transfer elsewhere.

As a result, two people retiring today can have very different retirement options simply because they belong to different pension schemes.

For Americans with UK pensions, flexibility is only part of the picture

For Americans living in the United States with UK pensions, retirement planning often involves more than simply accessing benefits.

Living overseas often changes what you need from a pension. Accessing benefits in a different currency, managing investments from another country, dealing with providers that were originally designed for UK residents, and understanding the tax implications of drawing benefits while living abroad can all become part of the decision.

There are also changes on the horizon that make reviewing older UK pensions more important, not less. From April 2027, unused pension funds are expected to fall within the scope of UK inheritance tax—a significant change for anyone planning to leave pension wealth to family. We covered this change when it was announced in our earlier article, UK Autumn Budget.

A pension that worked perfectly while you lived in the UK may no longer be the best fit once your life has moved overseas.

Could another pension be more suitable?

If your current pension doesn’t offer the flexibility you’re looking for, it doesn’t necessarily mean you’re out of options.

In many cases, it may be possible to transfer to another provider offering modern drawdown facilities and greater retirement flexibility.

However, transfers should always be considered carefully. Some older pensions include valuable guarantees or benefits that could be lost if transferred, making professional advice an important part of the decision-making process.

Three questions worth asking

1. What do I actually want from my pension?

Start with your retirement goals rather than your pension product.

Would you prefer guaranteed income? Flexible withdrawals? Tax-free cash? Or a combination of all three?

There is no universally right answer—only the one that best fits your circumstances.

2. Check what your pension actually offers

Review your latest pension statement or contact the current provider or scheme administrator to understand exactly what retirement options are available.

It’s also important to establish whether your pension is a defined contribution scheme or a defined benefit (final salary) pension, as these operate very differently. Defined benefit transfers are subject to additional rules and, in many cases, regulated financial advice is required before a transfer can proceed.

3. Is my current pension still the right fit?

Retirement is often the point at which people begin reviewing their wider financial arrangements.

For many people—particularly those living overseas—the pension that was suitable years ago may no longer be the most appropriate today.

Understanding your options early gives you time to consider them carefully rather than making important decisions under pressure.

The bottom line

Many UK pension schemes provide excellent retirement flexibility.

Others were designed for a very different retirement landscape and still offer only limited options.

The important thing is knowing which type you have before you need to rely on it.

If you’re unsure whether your UK pension offers the retirement flexibility you’re looking for—or whether it’s still the most appropriate home for your retirement savings—we’d be happy to help you understand your options.