How does taking a cash payment work?

When you reach age 55, you can choose to take your retirement savings as a cash payment. This could be all in one go, or spread over a series of smaller lump sums. 

The first 25 per cent of each cash payment will be paid tax free, while the rest will be taxed as income. Any money you leave behind will stay invested in your plan, so it still has time to grow. If at any time your needs change, you can always take a flexible income, or use the rest of your retirement savings to buy a regular secure income that’ll be paid for the rest of your life. When you die, any savings you have left in your plan can be passed onto your loved ones. 

Things to watch out for

With cash lump sums, your money isn’t guaranteed to last forever, so if you don’t manage your income carefully, it could run out before you die. Taking large sums of money out of your plan could push you into a higher rate tax bracket, meaning you’d need to give more of your savings to the government. When you leave money in your plan, there’s a risk your investments don’t perform as well as you’d hoped, so you might end up with less than you started with.

To find out more about your retirement options, talk to your financial adviser, or visit

Get up to speed 

If you're planning to take a cash lump sum, there’s lots to think about. Select a question below to see what taking a cash lump sum could mean for you and your pension savings.  

  • Have it all in one go or spread it out to suit you

    You can take all your pension savings in one lump sum – or spread it out over a series of smaller cash payments. 
  • Enjoy some tax-free cash

    Usually, the first quarter of any cash payment will be paid tax-free while the rest will be taxed as income. You may be entitled to a bigger tax-free allowance if you’ve previously secured one with HM Revenue & Customs. 
  • Give your savings more time to grow

    Whatever you leave in your plan will stay invested – meaning it still has the chance to grow. 
  • Keep your options open

    Providing you don’t take all your pension savings in one go, you can always explore another retirement income option.
  • Your pension savings aren’t guaranteed to last forever

    If you need your pension savings to live on, you need to think carefully about how you’ll make your money last. Because once it’s gone, it’s gone for good. 
  • You could pay more in tax

    Taking large sums of money from your pension savings can push you into a higher tax bracket – meaning you’ll hand over more of your hard-earned savings to the government. 
  • You can’t change your mind

    Once you’ve taken a cash payment from your plan, you can’t usually change your mind - even if your circumstances do. 
  • You could be exposed to investment risk

    When you leave money in your plan, there are no guarantees it will grow. Indeed, if your investments perform poorly, you could get back less than you started with. 
  • Saving into other pension plans could be restricted

    When you start taking cash from your plan, the government puts a limit on how much you (and your employer) can save into other money purchase pension arrangements without a tax charge. This is called the money purchase annual allowance – and it’s currently set at £4,000 a year. 
  • Your entitlement to state benefits could be affected

    The amount of cash you take from your pension savings could affect your entitlement to means-tested state benefits, this includes such things as housing benefits and council tax reductions.

    You should also remember that tax rules depend on your individual circumstances and may change in the future.

If you have money left in your plan when you die, it can be passed on to your loved ones – usually free from inheritance tax.

  • If you die before age 75, your pension savings can be paid to your loved ones however they like, income tax free.

  • If you die aged 75 or older, your pension savings can be paid to your loved ones however they like, subject to tax.

How does this income option compare?

*You may be able to take more than 25% if you have protected tax-free cash. A financial adviser could help you understand whether this applies to you.
Your options Secure income Flexible access Take cash
Can provide a regular income? Yes Yes No
Is my income guaranteed for the rest of my life? Yes No No
Can I change how much money I receive? No Yes Yes
Could my money run out later in retirement? No Yes Yes
Can I do something different with my savings in later years? No Yes Yes
Can I take some tax-free cash? Usually up to 25% of your pension pot*  Usually up to 25% of your pension pot*  Usually up to 25% of your pension pot* 
Find out more  Secure income Flexible access   

Explore your options

Before deciding to take a cash lump sum from your savings, it's a good idea to take some time to fully understand all your options.

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