Cashing in your pension just means taking all your savings in one lump sum. You’ll usually get the first 25% tax-free and pay income tax on the rest. You can use the cash in any way you choose but you’ll need to think about how to make the money last, and there may be other considerations too.
- If you take all your pension savings in one go, how are you going to make sure they’ll last throughout your retirement? Have you considered the potential cost of later life care?
- Taking a lump sum could affect any state benefits you’re entitled to, now or in the future, like pension credit, housing benefit, council tax reduction, and employment and support allowance (ESA).
- Make sure that taking the full lump sum doesn’t mean missing out on special features like guaranteed annuity rates. These could give you a higher level of income. Check with your provider.
- You can keep paying into defined contribution pension schemes but the maximum amount that you can pay in and still get tax relief, is limited to £10,000 (the Money Purchase Annual Allowance). You’ll only get tax relief if you’re under 75.
- If you access your pension benefits before your retirement date, there may be an early exit reduction fee or a market value reduction on your current policy, so your pension savings may reduce.
Understanding what tax you might pay
