When taking a combination of tax-free and taxable money from your pension, usually up to 25% will be tax-free and the rest is subject to income tax. You can take money out this way as single amounts whenever you want and/or as a regular income, but every time you take money it will always include a tax-free and taxable amount.
By taking cash lump sums you could lose some or all of your state benefits.
You will need to keep an eye on any money in your pension that you keep invested and review the funds you invest in.
Do you have a smaller pension pot?
There are different rules if your pension pot is less than £10,000. For the most up to date information on "small pots" please speak to your adviser or visit www.gov.uk.
Sally is 60 and still works part-time. She's not old enough to receive her state pension, but would like to access her pension pot to fund some urgent house repairs and a holiday with her husband to celebrate her 60th birthday. They have decided that £8,500 will cover their costs.
She has £50,000 in her pension pot. There are a number of ways to access the cash in her pension but Sally decides she wants to take the money as a cash lump sum for the holiday;
Sally takes £10,000 as a cash lump sum
The first 25% is tax-free, which is £2,500
The other £7,500 is added to any other income Sally has in this tax year and taxed accordingly. This means it could move her into a higher tax bracket. However, in this example Sally pays tax at 20%, so she pays £1,500 in tax (£7,500 x 20%).
Total received by Sally is £8,500
This is just an example and shouldn't be taken as a recommendation. It is based on our current understanding of tax, which could change at any time.
This planner shows you how taking different amounts of money from your pot can impact how long your money might last. You can input different amounts and see the impact it has.
This calculator will provide an estimate of how much Income Tax you may pay, depending on how much money you take from your pension. You can input different amounts in the box that asks for your gross salary and see roughly how much tax you might have to pay.
This tool is to show you how much Emergency Tax you might have to pay on withdrawals from your pension pot.
Subject to the rules of your Plan/Scheme, yes, you normally can - but remember to consider how you will fund your retirement and how much tax you may have to pay.
Yes, you can keep adding to your pension even if you've withdrawn from it. However, the amount that you can add and benefit from tax relief is reduced. This is called the Money Purchase Annual Allowance. Please speak to an adviser or visit HMRC if you think this affects you.
No, you have the flexibility to take out money how and when you need it. You don’t have to take all of your money at once, and if you take single amounts you can control how much tax you pay by spreading the amount over a number of years.
Yes, but remember interest rates in banks and building societies can be low, and there could be associated charges. Leaving money in your pension pot may be more tax-efficient and has the potential to grow, though as with all investments, your money could go down as well as up, so you might get back less than you put in.
We know there’s a lot to consider when planning for retirement, and it can be tricky to know where to start. To help you understand all your retirement options, we recommend speaking to your adviser or getting guidance.
Find an independent financial adviser in your area to help you in your future pension planning.
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Pension Wise is a free and impartial guidance service offered by the Government. They can’t make recommendations or tell you how to invest your money, but will provide information on a range of available pension options.
hmrc.gov.uk to find out more information on tax rules and legislation which may affect you and your pension plans.