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 may 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 planner.
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.
- If you take all the money from your pension early in your retirement, you risk running out of money later on.
- 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 may be able to take up to 25% of your pension free of income tax. Once you’ve withdrawn any taxable cash, you’ll be subject to tax charges if you pay more than £10,000 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 extra tax charges might apply (your lifetime allowance). The current limit is £1,073,100.
- 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. It’s also a good idea to watch out for pension scams, which can catch anyone out, no matter how clued up you may be.
- Scammers might try to talk you into transferring your pension pot into obscure, high-reward investments using cold calling or spam emails, for example, or they might just steal it entirely. And once it’s gone, there’s usually no way to get it back so you could lose your whole pension pot. If you want more information, find out more about pension scams and how to avoid them.
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.
Pension Wise from MoneyHelper is a free, government-backed service offering clear, impartial and specialist guidance on your retirement options. If you’re aged 50 or over, this service is available to you.
Visit the MoneyHelper website or call 0800 138 3944 for full details of the service.
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