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 is a cash lump sum?
When it comes to your chosen retirement date (currently the earliest you can retire is age 55, increasing to age 57 from April 2028), you can take the money built up in your pension savings as cash. The first 25% of each cash payment will usually be paid tax free, while the rest will be taxed as income at your normal rate.
If you're planning to take a cash lump sum, there’s lots to think about.
How does taking a cash lump sum work?
Decide how much
Take your money in one go or spread over a series of smaller lump sums.
Grow your savings
Any money you leave in your plan still has a chance to grow.
Keep your options open
You can explore other income options with any money left in your plan.
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.
What are my cash payment options?
- 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.
What do I need to watch out for?
- 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 change.
- 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.
What happens when I die?
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.
Not ready to access your pension savings?
That's ok. You can leave your money invested, giving it more potential to grow.
Five things to consider before opening a branch at the 'Bank of Mum and...
This guide highlights the pros and cons of lending adult children money, also known as 'the bank of Mum and Dad'
Financial planning Your money
Find the support you need
Find a financial adviser
Pension Wise (external site) is a government service from MoneyHelper that offers free, impartial pensions guidance.
Tell us how much income you're looking for when you retire, give us a few personal details and we'll let you know if you're on track.
Our mobile app makes it easy to check in with your pension savings whenever you like, and as often as you like.
Your plan online
Depending on the type of pension plan you have, you can access details of your pension savings with our secure online service.