Taking your entire pension pot as cash

It is now possible to take all of your money purchase pension savings in one go as cash from age 55. Whilst the first 25% is usually tax-free the other 75% will be taxed as income, so there’s a strong chance your tax rate would go up when the money is added to your other income.

If you exercise this option you can’t change your mind – so you need to be certain that it’s right for you.

If you plan to use the cash to clear debts, buy a holiday, or indulge in a big-ticket item you need to think carefully before committing to this option – doing so will reduce the money you will have to live on in retirement, and you could end up with a large tax bill.

For many or most people it will be more tax efficient to consider one or more of the other options.

To see how taking your entire pot as cash could affect your tax situation, use our pension tax calculator.

Taking your entire pension pot as cash
Advantages	Disadvantages
You have complete flexibility to use the money whenever you like	Once you’ve spent it, it’s gone. You need to consider whether you need it to last you for the rest of your life or if you have other income you can rely on.
25% of your lump sum is tax-free	The remaining 75% of your lump sum is added to your other income for the tax year and taxed as earned income. Depending on how much other income you have, taking all your pension pot as a lump sum might push you into a higher income tax bracket.
	Taking your pension pot as a lump sum could affect your entitlement to means-tested state benefits. You might get lower benefits as a result.
	If you want to continue to contribute to a pension and your contributions (together with those of your employer and the tax relief you receive) exceed £4,000, you may incur an additional tax charge.

How can I avoid a large tax bill? +

If you are thinking of totally withdrawing your pension fund, you might want to take into account any other earnings that you will have in the tax year, as the pension fund will be added to your earned income for tax purposes.

Everyone has a personal tax allowance of earnings before they pay tax, which might provide a way to draw pension funds in stages over a number of years.

However any tax planning should be discussed with a financial adviser or tax expert beforehand.

Use our pension tax calculator to understand more.

How else can I take my pension? +

You could consider securing a guaranteed retirement income. With this option, you give your pension savings to an insurance company and in return, they pay you a guaranteed income every year for the rest of your life.

This is also known as an annuity. Learn more about pension annuities.

Alternatively, you could opt for a flexible income approach such as drawdown. With this choice, your pension savings are invested and you take an income from those. Find out more about income drawdown.

Taking tax-free cash

Staying invested or deferring

Taking your entire pension pot as cash