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Things you should consider

Guide to taking all of my pension savings as a cash lump sum

You can take the entire amount of any of your pension policies as a cash lump sum from the age of 55. You can receive 25% of the amount tax free but the remaining 75% will be taxed at your marginal rate of tax.

Although this may sound like the most straightforward option – just take all the cash from your pension in one go and then do whatever you want with it – there are quite a few things you’ll need to consider before you take the plunge.

  • You’ll need to think very carefully about how you can make the most of your money, as it will have to last you the rest of your life. Plus, it might also have to cover the costs of any long term care you might need in the future.
  • There are tax implications that you’ll need to consider if you take your pension savings as cash and you can find out more about this in the section below.
  • If you take a large lump sum, it might affect any state benefits you’re currently receiving. These could include pension credit, housing benefit, the support for mortgage interest scheme (SMI), council tax reduction and your Employment and Support Allowance (ESA).
  • Make sure that by withdrawing the full cash sum you won’t miss out on any special features that your pension policy offers. For example if your pension has a guaranteed annuity rate (GAR), it could give you a higher level of income from an annuity, where the market annuity rate is lower than the guaranteed rate on your policy. You should check with your provider whether you have one and how it works.
  • There may be an early exit reduction fee such as market value reduction (MVR) on your current policy, so your pension savings may reduce if you take your benefits before your selected retirement date.
  • Once you have taken your pension savings as cash, you can still make contributions to
    defined contribution pension schemes up to your 75th birthday, but a £4,000* annual allowance will apply to all contributions. This rule, known as the money purchase annual allowance (MPAA) and is designed to stop people taking large amounts from a pension and using this to fund further pension savings.
  • *Important: Due to the unexpected general election planned for 8th June 2017 the current limit remains at £10,000 however the expectation is that this may reduce to £4,000. We therefore strongly recommend that you seek independent financial advice if you intend to contribute more than £4,000.

  • We always strongly recommend that you should seek financial advice or talk to Pension Wise before making any decision in regards to your policy. There is a requirement to obtain financial advice if your policy has a safeguarded benefit and a transfer value of more than £30,000 and you are considering cashing in your policy.
  • Your retirement pack will usually confirm if your policy has a form of safeguarded benefit, including detail of how and when this benefit will be applied. If you are still unsure or would like to understand in more detail please contact our Customer Service team.
  • Find out how you can obtain help, guidance and advice.
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