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.
Taking your savings as cash comes with tax charges, so it’s important to understand how that works.
- Normally, the first 25% of your lump sum will be tax free. The rest will be treated as income, which you’ll pay tax on.
- HMRC might apply an emergency tax code when you take your savings. If your final tax owed is lower than what you’ve already paid, you’ll receive a refund. If it’s higher, you’ll get an additional bill.
- The remainder of your lump sum (along with any other income) could push your income for the year into a higher tax rate. You may pay less tax if you use one of the other ways to access your savings.
- Use our tax calculator to see how much tax you’d pay if you take your pension savings as a lump sum.
Get guidance and advice
We recommend you get free impartial guidance from Pension Wise, a Government service from MoneyHelper about this and other options. You should also get independent financial advice before making any decisions about how to access your pension savings. See our guide to pension help and advice.
If your policy has a safeguarded benefit such as a guaranteed annuity rate (GAR), and a transfer value of more than £30,000 you must get independent financial advice before you can cash in.
Things to think about
Next steps
