What is a pension lump sum?
A pension lump sum is a cash payment you can take out of your pension from the age of 55 (increasing to 57 in April 2028). This gives you the flexibility to take a little or all of your pension in a single or multiple lump sums.
How much of the lump sum is tax-free?
You can normally take out up to 25% of your pension as a lump sum tax-free. Any amount taken out over this is will be
taxed as income at your marginal rate. To work out if a lump sum would be taxed, you can use our lump sum calculator. The tool helps you consider your options before taking out a lump sum.
Video transcript
At the moment, from age 55, you can choose to take your pension savings as a cash payment. This is increasing to age 57 from the 6th of April 2028.
This could be all in one go or spread over a series of smaller lump sums.
The first 25% of each cash payment will be paid tax free, while the rest will be taxed as income at your normal rate.
Any money you leave behind will stay invested in your plan and aim to grow.
If at any time your needs change, you can use the rest of your pension savings to take a flexible income or 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 on to your loved ones.
Things to watch out for:
If you take your pension savings as cash, 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 pay more tax on your pension savings.
To find out more about your retirement options, talk to your financial adviser, or visit royallondon.com/retirement
What to do before taking out a pension lump sum
Work out your tax
Use our lump sum calculator to work out if you’ll be taxed on the amount you want to take out.
Get financial advice
Before taking a pension lump sum, it’s a good idea to speak with your financial adviser or find one if you don’t have one.
Talk to us about lump sums
Once you’ve considered your options, get in touch with us to go through the steps to take your lump sum.
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Are you happy to keep your money invested?
While your money stays invested, there are no guarantees it will grow. If your investments perform poorly, you could get back less than you started with.
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How much do you need to take out?
Consider carefully how much you’d like to take out. You could be taxed if you take out more than 25% of your pension.
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Are you after one larger payment or would an income be better?
Although you can take out lump sums as and when you need them, they aren’t a replacement for regular income. If this is what you’re after, consider a pension drawdown.
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Will you have enough left in your pension savings after taking a lump sum?
If you withdraw too much of your pension savings, you might have less than you thought when you retire
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Are you willing to limit the amount you can pay into your pensions?
If you take out more than 25% of your pension, you may restrict what you can pay into your pensions to £10,000 a year.
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