While this may sound complex, it is actually very simple! ‘Crystallisation’ simply refers to the process of cashing in a pension; you can crystallise your pension from the age of 55. An ‘uncrystallised’ pension is one which hasn’t been cashed in yet.

By crystallising a pension, you can then take a tax-free sum of money of up to 25% of your pension and draw an income from it via a ‘drawdown’ or an ‘annuity’.

The decision as to when to start taking benefits can have some huge implications for tax and your retirement planning. It’s important to understand these before dipping into your pension in any way.

What is a crystallised pension?

Your personal pension is  ‘crystallised’ from the first point you begin taking your retirement benefits. Most people can do this once they reach the age of 55 if they have a pension fund that allows them to do so, or by transferring to a pension pot that does allow this.

There are lots of ways that a pension can become crystallised, but the two main methods are through purchasing an annuity or through a pension drawdown.

What are annuities and drawdowns and which is better?


An annuity is a long-term investment that is issued by an insurance company that is designed to help protect you from outliving your pension income. There are many different types of annuities:

  • A fixed annuity guarantees a payment of a set amount for the term of the agreement and it can’t go down (or up).
  • A variable annuity can fluctuate with the returns on the mutual funds it is invested in. Plus, its value can go up (or down).
  • Immediate annuities begin paying out as soon as you make a lump-sum payment to the insurance company.
  • A deferred annuity can begin the payments on a future date set by you.

People usually purchase annuities to add to their other sources of retirement income, such as their other pensions and their Social Security. 

An annuity that provides a guaranteed income for life can assure you that even if you spend all of your other assets, you can still have some additional income coming in too.


A pension drawdown is a way of dividing up your pension pot to give you a regular retirement income through reinvesting it in funds that are specifically designed for this purpose. The amount that you will receive will vary depending on the fund’s performance. It isn’t guaranteed for life.

A drawdown is a much more flexible option that most people are now considering moving towards as it allows greater control over how and when you take your pension benefits. It also shows that your savings are still active, which means that your pension pot will still have the potential to grow.