Join our community of smart investors

Should I take all my pension now?

If this investor cashes in his final salary pension he will lose a regular income stream free from investment risk
Should I take all my pension now?


  • This investor wants to cash in a final salary pension
  • If he does this he will lose a regular income, free from investment risk
  • He needs to make sure his investments suit his risk tolerance
Reader Portfolio
Ray 55

Pensions, Isa invested in shares and funds, residential property, cash.


Retire at 67, decide how to take pension, use investments to finance a comfortable retirement, buy a holiday home worth around £300,000.

Portfolio type
Investing for goals

Ray is age 55 and earns £60,000 per year but his wife has recently been made redundant from her part-time job. They have four children and six grandchildren.

Their home is worth about £450,000 and mortgage free. They have two buy-to-let properties worth £200,000 and £160,000 with mortgages of £60,000 and £40,000, respectively. These provide rents of £900 and £750 per month, respectively.

“I would like to retire at age 67 and have a deferred final salary scheme pension worth about £750,000,” says Ray. “I have been advised to take my pension at age 60, taking 25 per cent as a lump sum and the rest as a monthly pension. But I feel that I should take the full amount and maybe move to drawdown – against professional advice.

"I also have around £40,000 in a money purchase scheme, and hold investments within an individual savings account (Isa) because spare money is better invested than held in cash. I want my investments to enable a degree of comfort and choice when I retire, and I would love to buy a holiday home in the UK worth around £300,000.

"I became interested in investing when a previous employer, British Gas, floated on the stock exchange and I did quite well via its share save scheme. I love to read about investing and do my research as best I can, though wish I understood company accounts a bit better.

"When assessing a potential investment, I look at its share price trend over the long term, the size of its debt and profit in relation to the value of the company, and how its price/earnings ratio compares to other companies in the same sector. I normally initially invest £500 in direct share holdings and £1,000 in funds, and top them up when I feel the time is right. I am currently thinking of topping up AFC Energy (AFC), Barclays (BARC) and Nio (US:NIO).

"During February and March last year, I invested heavily in a range of sectors which have proved fruitful, though I am still waiting for my holdings in International Consolidated Airlines (IAG), JD Wetherspoon (JDW) and Associated British Foods (ABF) to rebound. I have also bought Carnival (CCL) and Mitchells & Butlers (MAB) for the shareholder perks and to take a chance on a low share price.

"Over the past few months, I have added exposure to hydrogen, electric vehicles, Bitcoin, 5G, drones and cannabis. I have also added to US exposure, as I feel that its ‘shop window’ is larger than the UK’s, and initiated a holding in Fidelity China Special Situations (FCSS) which I intend to hold for the long term. 

"I would now like to add a solar company as this area has massive potential.”

Ray and his wife's total portfolio
HoldingValue (£)% of the portfolio 
Buy-to-let properties minus mortgages260,00066.53
Money purchase pension40,00010.24
NS&I Premium Bonds20,0005.12
Scottish Mortgage Investment Trust (SMT)20,0005.12
Plug Power (US:PLUG)4,0001.02
Compass (CPG)3,0000.77
Polar Capital Technology Trust (PCT)2,0000.51
ITM Power (ITM)1,9000.49
AFC Energy (AFC)1,8000.46
Carnival (CCL)1,8000.46
JPM US Small Cap Growth (GB00B8H99P30)1,8000.46
Anglo American (AAL)1,7000.44
Barclays (BARC)1,7000.44
International Consolidated Airlines (IAG)1,5000.38
Rathbone Global Opportunities (GB00BH0P2M97)1,5000.38
HSBC FTSE 250 Index (GB00BV8VN686)1,4000.36
Royal Dutch Shell (RDSB)1,4000.36
Legal & General (LGEN)1,3000.33
Lindsell Train Global Equity (IE00BJSPMJ28)1,2000.31
Argo Blockchain (ARB)1,1000.28
Rize Medical Cannabis & Life Sciences UCITS ETF (FLWG)1,1000.28
Imperial Brands (IMB)1,1000.28
Fidelity China Special Situations (FCSS)1,0000.26
Powerhouse Energy (PHE)1,0000.26
Renewables Infrastructure (TRIG)1,0000.26
Bloom Energy (US:BE)9000.23
Nio (US:NIO)9000.23
Unilever (ULVR)9000.23
Vistry (VTY)9000.23
Associated British Foods (ABF)8000.2
GlaxoSmithKline (GSK)8000.2
J D Wetherspoon (JDW)8000.2
Prudential (PRU)8000.2
Crocs (US:CROX)7000.18
Future (FUTR)7000.18
Ibstock (IBST)7000.18
Telit Communications (TCM)7000.18
Airbnb (US:ABNB)6000.15
BAE Systems (BA.)6000.15
Diageo (DGE)6000.15
Gamma Communications (GAMA)6000.15
WM Morrison Supermarkets (MRW)6000.15
Rolls-Royce (RR.)6000.15
Tyson Foods (US:TSN)6000.15
Arrival (US:ARVL)5000.13
Cloudflare (US:NET)5000.13
Zynerba Pharmaceuticals (US:ZYNE)5000.13
AeroVironment (US:AVAV)4000.1
BlackBerry (US:BB)4000.1
ChargePoint (US:CHPT)4000.1
Mitchells & Butlers (MAB)40




Chris Dillow, Investors' Chronicle's economist, says:

There’s a good reason why your advisers have told you to keep your final salary pension. A regular income, free from investment risk, is a great thing. You mustn’t give it up without a lot of thought.

One argument for giving up your final-salary pension is that you have a safeish income from other sources – your buy-to-let properties and the prospect of working until you are 67. Even so, might it not be better to keep your pension and finance the purchase of a holiday home by selling one of your buy-to-let properties instead? Selling one of these means losing an income stream, but whichever way you fund the purchase will result in some kind of loss.

Also, interest rates might well rise in the next two or three years which could hurt your equity portfolio. This is not because it is exposed to an unusual amount of interest rate risk but rather because equities generally might fall as some investors move back into cash. You could also suffer as a result of higher costs relating to your buy-to-let properties and possible falls in their prices. And the transfer value of your pension could also fall if gilt yields rise.

Your investments are over diversified. Each individual stock accounts for such a small proportion of the overall portfolio that it makes little difference whether it out performs or not. Diversification dilutes returns in both directions – it cuts your chance of big gains as well as big losses. This means that you have, in effect, a tracker fund. But you’ve incurred far more dealing costs and spent far more time acquiring it than you would have for one tracker fund.

My concern is mitigated because you are mostly avoiding funds with high charges – one of the bigger costs of over diversifying. And if you regard time spent researching companies as a nice hobby you have not given up precious leisure time to a tedious task. But learn as much from your stock-picking mistakes (something we all make) as from your successes – don’t get overconfident.

There’s a common mistake I would caution against. You’re interested in China and solar power because of their growth potential. This is more dangerous than it seems for a reason pointed out by Aswath Damodaran, professor of finance at the Stern School of Business at New York University. He says that a potentially big market attracts lots of entrants, which means big competition and low profit margins or losses. This is one reason why there is no correlation between countries' longer-term economic growth and equity returns: a fast-growing economy encourages new firms to start up, competing away the profits of incumbents.

Look at this the opposite way. One of the best-performing UK stocks in recent years has been Games Workshop (GAW). It operates in a small market but has near-monopoly power in it, and a big share of a small pie is better than a tiny sliver of a big one. So you should add monopoly power to your strategy.

Look at whether a company has a way of fending off rivals so it can entrench its market position and whether this power is underpriced. Lots of your holdings have such an advantage, for example, Associated British Foods, Diageo (DGE) and Unilever (ULVR) which have strong brands. Stick to this principle when looking for growth stocks.


Rob Harrison, investment manager at Progeny, says:

You need to focus on a clear long-term objective for your investments. The key to getting the right asset allocation for these is to make sure that they suit your risk tolerance. Understanding risk is paramount, but I’m not sure that you have fully grasped the risk of some of your holdings.

It’s always useful to look at how a share price behaves or, for funds, the Key Features Document which provides an indicative risk score. Knowledge and understanding of the level of risk you are comfortable with is fundamentally important in any investment activity.  

Over 75 per cent of your investments are in equities and less than a quarter are in defensive assets, giving them a medium high risk profile. The only defensive asset is the NS&I Premium Bonds, one of the most secure assets as they are backed by the UK government. However, in times of market stress they will be flat and not increase in value unless you win a prize, unlike traditional government bonds which typically increase in value providing balance in a portfolio. NS&I Premium bonds are also unlikely to keep up with inflation: their current payout rate and the expected level of inflation means that they offer negative real returns.

Your investments have a bias to the home market with 35 per cent in UK equities. The majority of the rest of the equity content is predominantly in the US, with a small weighting to China. It is very hard to know exactly which region will do best at which times, so there is a benefit in having a broader geographical exposure which includes Europe, Japan and emerging markets.

Diversification of stock securities and sectors is equally important in a portfolio. Your direct stock holdings are well diversified with 39 names, each of which typically account for less than 2 per cent of the investments, reducing stock-specific risk. Stock weightings should also be sized according to risk. Less volatile stocks with more predictable earnings can have higher weightings in a portfolio, but more speculative investments should have smaller weightings to reflect their risk. So monitor your relatively large holding in Plug Power (US:PLUG) as this is a higher-risk business which could experience large share price falls, such as the 70 per cent fall between January and May.

When assessing a company's risk, it is worth looking at its share price and earnings volatility. Larger multinational companies with predictable revenues are usually less volatile than speculative ones or companies with volatile revenues. An example of this is Royal Dutch Shell (RDSB), of which the share price has experienced large falls due to the decline in the oil price. The earnings of businesses like Royal Dutch Shell are correlated to a commodity price which is out of their control, and last year this resulted in share price falls of more than 60 per cent over short periods of time.

Investing in funds can be safer than having one holding in a stock as they are more diverse. But it is important to understand what area of the market the fund invests in as the risk between different funds can be large.

Your £20,000 position in Scottish Mortgage Investment Trust (SMT) is high risk because it invests in higher-risk businesses with higher levels of volatility. This may be rewarded over time as higher-risk investments can produce higher returns. But it can also mean larger falls, for example, during the past year Scottish Mortgage fell nearly 30 per cent over a two-week period. There is nothing wrong with holding investments like this but it is important to understand their risks.