Taking it as cash
You can take cash lump sums from your retirement savings in a number of different ways.
Understand your options
Take 25% of your savings as a tax-free lump sum
You can usually take up to 25% of your total retirement savings as a lump sum, paid completely free from tax.
Take a full or partial withdrawal
You can choose to draw some or all of your retirement savings as a cash lump sum.
The first 25% of any payment will be paid tax-free; the remaining 75% will be taxed at your marginal rate.
Depending on the other income you have, taking large sums of cash might push you into a higher income tax bracket – so you’d pay more tax.
If you’re unsure about how you’d be taxed by taking a full or partial withdrawal, we’d recommend talking to your financial adviser.
Cash in any small pots
Retirement savings with a total value of £10,000 or less are referred to as ‘small pots’. You can cash in a maximum of three small pots as a single lump sum. The total value of each pot has to be taken in full and they can’t be taken as partial lump sums.
The first 25% or any lump sum will be paid tax-free, the remaining 75% will be taxed at your marginal rate.
When a small pot is cashed in, it won’t affect how much you can continue to pay into any other pension plans you have.
Before deciding whether to take a full or partial withdrawal from your plan, there are some important things you need to think about.
We 'd recommend you discuss these with your financial adviser to make sure you get the best possible outcome for your own individual circumstances.
Do I need a regular income?
Taking lump sums from your retirement savings might sound like an attractive proposition – but once you 've spent it, it 's gone.
You need to think carefully about whether you need your retirement savings to last you for the rest of your life or if you have another income you can rely on.
Will my State benefits be affected?
Taking lump sums from your retirement savings could affect your entitlement to certain State benefits.
For example, means-tested benefits are paid according to whether your total income and savings fall within certain limits. These benefits include such things like pension credit, housing benefit (for rental costs) and council tax support.
If you think you might be eligible for these benefits, you need to think about how the way you take your retirement savings will affect your entitlement.
You can find out more about means-tested benefits at www.gov.uk.
What happens when I die?
Inheritance tax may be payable on your savings and other assets when you die. Any retirement savings you 've put into savings would form part of your estate. Tax may be payable on your death if the value of your assets exceeds £325,000.
It can be difficult to decide whether inheritance tax is payable on pension benefits. You can find more information by visiting the Government website or by getting in touch with the Probate and Inheritance Tax Helpline on 0300 123 1072. They 'll be able to help you understand any potential inheritance tax liability.
Can I afford to retire?
You can use our quick pension calculator to see how much income and tax-free cash you might expect when you retire.
Can I continue pension contributions?
The Government set allowances on how much you can contribute towards your retirement each year.
As soon as you take a full or partial withdrawal from your plan, the maximum you can pay into any other pension plans may be reduced to the money purchase annual allowance.
The limit set by the Government is currently £10,000. The 2017 Spring Budget did include plans to reduce the MPAA to £4,000, however, this was not included in the Finance Bill/Act 2017. It is not clear if/when the reduction will be reinstated.
We recommend you speak to a financial adviser if you think this applies to you.
What other options do I have?
You don 't have to take all your retirement savings in cash. Take a look at the other options you have available.