Taking cash from your pension

Withdraw cash from your pension whenever you want, from age 55. Take some or take it all – the choice is yours.

From age 55, you can take cash from your pension whenever you want. The first 25% is normally tax free, the rest is taxed as income.

Your pot stays invested, giving you the potential for future investment growth.

You can keep your options open.  Choose to take a flexible income or buy an annuity to get a fixed income when the time is right.

You can also pass on your remaining pot to a loved one when you die, inheritance tax free.

What do I need to think about?

Do you really need it now? Any money you withdraw won’t have the same tax advantages, and you must make sure your money lasts as long as you need it to.

Any withdrawals beyond your 25% tax free limit will be taxed as income and could move you  into a higher tax band if you’re getting an income elsewhere.

Remember, there’s always the chance of your investments performing poorly and the value of your pot significantly falling.

Take a look at our Taking cash from your pension guide to find out more.


Update to Money Purchase Annual Allowance - what you need to know

Taking cash lets you:

  • Stay flexible
    You can keep your options open
    • Dip in to your savings anytime and as often as you like from age 55 (57 from 2028)
    • Convert to a guaranteed income when it suits you using your remaining pot
    • Take a flexible income at any time
  • Take tax-free cash
    The first 25% you take as cash is normally tax-free. You’ll pay income tax on the rest.
  • Stay invested
    Your remaining pot will stay invested, giving potential for future investment growth which can help your income last longer, but this also means the value of your pension could fall as growth isn’t guaranteed.
  • Support family
    You can pass on your remaining pot to anyone you choose, normally free of inheritance tax.
    • If you die before age 75, this will normally be completely tax free.
    • If you die after age 75 or over, your beneficiaries will be able to access the pension flexibly, at any age, subject to income tax.

What do I need to think about?

  • Do you need the money now?
    It’s a good idea to only take cash if you need it. Any money removed from your pot won’t have the same tax advantages so if you have money in other investments you could consider using that first. The more you take now, the less you’ll have in the future.
  • Watch your withdrawal doesn’t take you into the next tax band
    Once you go over your tax-free cash limit you’ll pay income tax on the rest. You could end up paying more if your withdrawal added to any other income in that tax year takes you into a higher rate tax band. You may pay less tax if you spread out your cash withdrawals and keep below higher rate bands.
  • Payments into any money purchase pension could be restricted
    Taking out more than your tax-free cash limit (when you start accessing taxable income) restricts the payments you or an employer can make to any of your money purchase pensions to £4,000 a year. This can be a problem if you’re still earning and either have other savings you want to pay into a pension or if you intend to make significant payments into any of your pensions.
  • State benefits
    Your entitlement to means-tested state benefits, if applicable, may be affected if you take cash or income from your pension – check this isn’t going to be a problem before going ahead. 
  • Shopping around
    It's important that you shop around to find the best deal for you. Your pension provider may not offer the option you want or other providers may be able to offer you a better deal. So it's worth comparing what each provider can offer. Find out more about shopping around.

Tax rules and legislation can change and your tax treatment will depend on your personal circumstances. Any information given is based on our understanding of law and current HM Revenue & Customs practice, as at April 2018.

The information provided here should not be regarded as financial advice. If you’re unsure you should speak to a financial adviser. There’s likely to be a cost for this.

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Access to impartial guidance

We recommend you seek appropriate guidance or advice before you make any decisions. An adviser may charge a fee for this. You can also get free impartial guidance over the phone or face to face with Pensionwise. Go to pensionwise.gov.uk or call 0800 138 3944. Make sure you understand all your retirement options by reading the Money Advice Service guide – Your pension - it’s time to choose

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