What will happen if I withdraw all my pension money?
Thinking of taking all of your pension as a cash lump sum? There are a few things you should think about first. Make sure you know how much tax you’ll pay – 25% of what you take will be tax-free, but you may need to pay income tax on the rest.
See our Pension Withdrawal Tax Calculator to get an idea of how much income tax you’ll have to pay.
Remember, if you spend all the money from your pension now, you won’t have it when you might need it later on – once it’s gone, it’s gone.
Do you need all the money in your fund right now?
If not, you may want to leave your money where it is, or only take the tax free 25%. If you're not planning to stop work now, it may be a good idea to leave your money where it is, because you might fall into a lower tax band once you retire. This would mean you pay less tax on your withdrawal then, compared to if you took it out now. That said, any money you don’t take out will remain invested, so the value of that money can still go up and down, and may be worth less than when you invested it.
Will taking cash from my pension fund affect my benefits?
If you receive any means-tested benefits , you will increase your income with the pension money you take out, which may affect the benefits you receive.
What if I want to put more money into my pension fund in the future?
When you pay into a pension, you’re usually eligible for tax relief on what you pay in up to a certain amount each year. This is known as your annual allowance.
If you take more than 25% of your pension, your annual allowance will fall to £4,000 if you want to pay into a personal pension in the future.
Taking your money as one lump sum will also count towards the total amount of pension money you can use for retirement benefits before paying tax. The limit is current £1 million, so this won’t be a problem for most people.
Does my pension carry any guarantees?
If you take all of your pension out, any guarantees you have, such as receiving a minimum amount, will no longer apply. Please check the terms of your pension carefully before making any decisions.
Instead of taking out all of the money in your pension, you could simply take money from your pension whenever you need to.
Pension Wise has been set up by the government and offers free and impartial guidance for people retiring with defined contribution pensions. It will help you understand what your choices are and how they work.
You'll be able to get help on the Pension Wise website, over the phone or face to face.
If you are approaching retirement we recommend you get guidance or advice to help you understand your options.
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