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I have a small pension pot of around £12,500 which matures later this year.

I need some guidance on whether to take it as one lump sum, part lump sum and annuity or simply leave it in for further growth.

How big is the risk to keep the fund invested for some time? I would like to thank you in advance for your expert help.

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Retirement finances:  Should I cash in a £12,500 pension pot, buy an annuity or keep it invested?

Steve Webb replies: The advent of 'automatic enrolment' into a workplace pension has helped millions of people to make a start on retirement saving and to build up a pension pot.

But all of these people will at some point need to make choices about what to do with it.

And, because your pension pot is relatively modest, the chances are that it would simply not be cost-effective to pay for financial advice. So where can you go for help and what are your options?

For anyone aged 50 or above the first port of call is Pension Wise. This is a free service organised by the Government and hosted by an organisation now called MoneyHelper.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

You can find information on their website here or you can book a phone consultation. 

Whilst they won't give financial advice they will guide you through your options and explain in general terms the implications of each.

Without knowing your full financial circumstances, including things like your other sources of income in retirement, how much risk you are comfortable taking, your wider household situation, your health and so on, it is hard to say that there is an obvious 'right answer' as to what you should do.

But I can offer a few pointers for things you should think about.

The first obvious point to make is that there is no great significance in the December 2021 'maturity' date of your pension.

I imagine this is simply the date that you have told your pension company you might want to take your pension or is a key birthday.

Either way, there is absolutely no need to access your pension at this point. Just because you 'can' take your pension, it doesn't mean that you 'should'.

Indeed, unless you particularly need the money, there is a lot to be said for continuing to invest it, either within the current pension or in some other investment.

One option you mention is buying an 'annuity' or income for life. If you do go down this route, you should definitely shop around for the best rate.

Your own pension provider (whose name you have given me) do not offer annuities themselves, but they may well help you to find someone who does.

When you apply for an annuity it is very important to supply full details of any health problems or if you are a smoker, as this can result in you getting a better rate.

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Having said that, although £12,000 feels like a lot of money, it is very much at the small end when it comes to buying an annuity.

You may find that not many companies will offer you an annuity at all, or that the rates are not great.

One thing that you could explore is combining this pension with any other pension pots you have in order to get a better rate, if an annuity is the right answer for you.

One problem with buying an annuity, especially if you are still of working age, is that it adds to your taxable income.

If you draw it now, rather than waiting until you are retired and have a lower income, you may end up paying more tax on it than you need to.

Another very important factor to consider, whether you take your pension as income or as a lump sum, is the potential impact on any benefits you are receiving.

In particular, some benefits, such as Universal Credit, have strict 'capital limits' and if you go above these you may lose all your benefit.

Although the UC capital limit is £16,000 and your pension pot is only just over £12,000, if you already had a few thousand pounds in the bank you could end up over the limit.

If you are getting help with your council tax from an English local authority, the capital limit could be as low as £6,000, so taking all of your pension could wipe out that help.

I would strongly recommend that you visit your pension provider's website or contact them to find out what happens if you leave your pot with them as it stands.

It is very unlikely to be 'frozen', but the way it is invested could change.

Like millions of other people, you are a member of something called a Master Trust, which is a big, multi-employer pension scheme which is widely used for automatic enrolment and was mainly designed to help people build up pension pots.

Historically these schemes have been less focused on the post-retirement phase, so they often have fairly basic offerings which tend to be fairly cautiously invested.

The key is to find out what will happen to your money if you leave it where it is and compare it with other options.

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