The value of your investment can go down as well as up and you may get back less than you paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK also have an impact on tax treatment.

Want to take cash from your pension plan?

You can usually start taking lump sums from your pension plan once you reach age 55 (rising to 57 from 6 April 2028). You decide how much to take and when to take it, you can even take the full value of your pension plan in one go. It's worth remembering that you can run out of money if you take too much, or if you live longer than expected. How long your money lasts also depends on how your remaining investments perform.

There are other ways to take money from your pension plan. You can set up a  guaranteed income for life (annuity)  or take a  flexible income (drawdown) at any time. We’ve compared the different options below to help you decide what’s best for you.

What you need to know about tax

Normally up to 25% of your pension pot can be taken tax-free with the rest being subject to income tax. The amount of income tax you pay depends on your total income, your personal circumstances and where you live in the UK.

Your total income includes money you receive from your pension plan, employment and other taxable sources. It can pay to be tax savvy.

To help you get an idea of how taking cash might impact your tax bill, we’ve put together this handy breakdown.



How much is tax-free?

25% of your pension plan is usually tax free. This means if you had a pension plan worth £100,000 then £25,000 would be tax free and £75,00 would be taxable

Pension Pot £100,000 £25,000Tax-free £75,000Taxable Taxable

Important information: The examples below are based on the following:

  • You have a pension pot of £100,000
  • You have no other income
  • You are living in England (income tax rates can vary across the UK)
  • You take your full tax-free cash entitlement and use a flexible income option (drawdown) for the rest
  • It doesn't account for the performance of any money left invested
  • Tax rates can change

Taking money out over 1 year


£82,500In your hand£17,500Tax billTaxTaken over 1 year£100,000

Taking money out over 2 years

If you take your tax free cash in year one and then take your taxable income out over two tax years, you may be able to take advantage of your personal allowance each year and you could prevent your income from falling into the higher rate tax band. You could get £90,000 in your hand and pay a tax bill of only £10,000.

£100,000Taken over 2 years£90,000In your hand£10,000Tax billTax

Taking money out over 3 years

If you take your taxable income out over three tax years, you may be able to take advantage of your personal allowance each year and you could prevent your income from falling into the higher rate tax band. You could get £92,500 in your hand and pay a tax bill of only £7,500.


£100,000Taken over 3 years£92,000In your hand£7,500Tax bill Tax

Other important things to think about

Before you start taking cash, there are a few other key things to think about to help you make the most of your tax allowances and to help make your money last longer.

If you delay taking money you need to remember it remains invested and can still go down in value as well as up. You could get back less than was paid in.

  • Do you need the money now?
  • Delaying taking your money can have some benefits.

    • The value of your plan could go up if the investments perform well.
    • You might also choose to delay taking your money until you're in a more favourable tax position.
    • Taking too much could push you into the next tax band.

    For example

    If you're still working and take your pension money as well, your cash withdrawal and any other income in that tax year could push you into a higher tax band. Whereas if you wait until your income is lower before accessing your pension money or you spread out your cash withdrawals over several years and keep below higher rate bands, you might be in a lower tax band and pay less tax.

    Keep in mind that the more money you take now, the less you'll have in future, and anything you take over your tax free cash will be subject to income tax.

  • Payments into your pension plan could be restricted
  • Taking out more than your tax free cash will lower the amount you, your employer or any third party (excluding transfer payments) can pay into your defined contribution pension plans each tax year while being eligible tax benefits. It will drop from £60,000 (or 100% of your earnings, whichever is lower) to £10,000.

  • Taking cash could affect your state benefits
  • If you receive any means tested benefits these could be affected when you start to access your pension pot. It's important to check if it applies to you.


  • Pension savings are normally outside of your estate
  • Pension savings are normally not subject to inheritance tax or form part of any debt collection.

Not sure if taking cash is the right option for you?

Don't worry you have other choices. Our guide to retirement options explains how each of them works, breaks down their features, and has details on how to get started with your chosen option.

Here’s a quick comparison of how the features of each retirement option compare.


Will you get a guaranteed income for life? Does your remaining money stay invested? Can you access your money at any time? Can you pass on what's left after you die?
Take a flexible income   No  Yes  Yes  Yes
Take one or more lump sums   No  Yes  Yes  Yes
Buy a guaranteed income for life (annuity)   Yes  No  No  No*
Leave your pension invested for now  No Yes  Yes  Yes

*Usually you can't pass on your guaranteed income for life (Annuity), but you could add on options. For example, you could choose to pay a spouse's pension after you die, to keep paying the income for a guaranteed period or to include value protection, which provides a lump sum death benefit. Please visit our Guaranteed Income for Life page for more information.

Access to impartial guidance

We recommend you seek appropriate guidance or advice before you make any decisions. An adviser is likely to charge a fee for this. You can also get free impartial guidance over the phone or face to face from the age of 50 with Pension Wise a service from MoneyHelper. Go to  or call 0800 138 3944

If you want to use a financial adviser, you should always make sure they're authorised by the Financial Conduct Authority (FCA).

The government's MoneyHelper service has a useful guide to help you find a financial adviser.

Want to look at all your options?

Don’t worry; we have some handy tools that can help. They’re quick and easy to use, and can help you make a more informed decision that’s right for you.

Retirement pathfinder

Our Retirement Pathfinder tool can help you understand how you can take your pension money in a way that suits you.

Retirement calculator

Our Retirement Calculator can help you explore your options based on your pension’s value.

Ready to take cash from your pension plan?

If you feel that taking cash from your pension plan is the right option for you, we have a few next steps to help you get started.