Thinking of taking it all in one go?
One option for your pension is to take all of the money you’ve saved in a single cash lump sum.
25% tax free
When you withdraw your money, you get 25% tax free and may pay income tax on the rest
You’re in control
Use the money in a way that’s right for you and your circumstances
When it’s gone it’s gone
Emptying your pension now could leave you short of money later on
Tax benefits are subject to change and depend on your individual circumstances.
To help you plan and find out how much money you’ll need, try our retirement spending calculator.
How taking it all at once works
If you decide to take all of the money in your pension as a cash lump sum, it pays to think through how this could work for you – in both the short and long term.
- The tax you’ll pay
You’ll usually get 25% of your pension tax free and be subject to income tax on the rest. Because you’ll get the money all in one go, the tax you pay could be a lot and you may end up paying tax at a higher rate than if you took your money over a number of years.
- Fees and charges
You should check the terms and conditions of your pension policy to understand any fees, charges or limitations you might have for withdrawing all your money in one go.
- The amount you’ll receive
The amount you receive will have income tax taken off, calculated using HMRC guidelines. If you owe any more tax, you’ll need to report and pay this to HMRC directly. If you think too much tax has been taken off, you’ll also need to claim this back from HMRC.
- Your pension will be closed
Once you’ve taken all the money, your pension will close and you won’t be able to make any further payments into it. Instead of taking all the money in your pension in one go, you could take smaller amounts as and when you need to.
Thinking of taking all your pension as a lump sum?
Use our calculator to see how much tax you could pay.
Before taking it all
There are some things you need to be aware of before choosing to take your pension pot all in one go or in a number of lump sums.
- If you take all the money from your pension early in your retirement, you risk running out of money later on. Our retirement spending calculator could help you plan ahead.
- If you’re still working, your salary plus lump sum may push you into a higher tax band than if you just take the tax-free amount or delay until you stop working.
- Money you get from your pension is looked at when working out your entitlement to any state benefits. Taking a large lump sum in one go may affect the benefits you can receive.
- You can take up to 25% of your pension tax free. Once you’ve withdrawn any taxable cash, you’ll be subject to tax charges if you pay more than £4,000 in total into any defined contribution pensions in a tax year. This is called money purchase annual allowance (MPAA).
- Taking a lump sum counts towards the total amount of pension money you can use for retirement benefits before paying an extra tax charge (your lifetime allowance). The current limit is £1.03 million.
- Any benefits or guarantees you have with your pension, such as receiving a minimum amount, will no longer apply if you take it all as cash in one go. Check the terms of your pension carefully before making any decisions.
- If you’re planning to put the money you take into savings or other investments, you should compare and think about how it will get treated for inheritance tax purposes.
If you’re looking for help with your pension or retirement options, our financial advice support team can help you decide whether financial advice is right for you.
Other ways to use your money
In most cases, from age 55 you have a range of options for how you use the money you’ve saved. You can see more and compare your options here.
Guaranteed income for life
Use some or all of your pension to buy an annuity that pays you a regular and guaranteed income for the rest of your life.
A flexible way to use your pension by taking money as and when you need to through income drawdown.
Leave your money where it is
If you’re approaching 55 but aren’t planning on taking retirement straight away, you could leave your money where it is until you’re ready.
Take a look at our library of helpful articles and guides.
29 Nov 2018
Retirement and divorce
If your relationship ends in divorce or annulment, your retirement savings can be shared or split. Take a look at what this could mean for you.
29 Nov 2018
What is a pension?
Find out about the different types of pension and how they can help you enjoy a happy and secure retirement.
29 Nov 2018
What happens to your pension when you die?
If you’re thinking about how you can provide for your loved ones, find out if and how your pension can be passed on.
29 Nov 2018
ISAs vs pensions
Explore the features and benefits of ISAs and pensions to help you work out what’s going to work hardest for your retirement savings.
16 Apr 2018
Your Friends Life pension questions answered
Friends Life is now part of the Aviva group. Find out how this affects your Friends Life pension.
17 Jan 2018
How much should you pay into your pension?
Get some help working out how much you need to pay into your pension to help you achieve the retirement lifestyle you want.