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So how does that work?
Once you reach retirement age you can take out some or all of your money from your pension pot. Depending on your pension there will be restrictions of what age you need to reach, before you can access your money.
What’s more, you can take up to 25% completely tax-free in addition to the yearly tax-free allowance for income and leave your remaining pension fund invested.
your cash lump sum
Your tax-free cash could free up money to...
Invest in products that generate a tax-free income, like ISA's
Pay off any remaining mortgage
Save for emergencies and unforeseen expenses
Take that holiday of a lifetime
How to access your tax-free cash
Here's how you can access your tax-free cash
Up to 25% as tax-free cash
Take up to 25% of your pension pot as a tax-free lump sum. The remaining 75% would then be used to buy a pension product, for example an annuity, and would be liable for any tax when you take it.
25% tax-free on every withdrawal
Take 25% tax-free on every withdrawal as you go. You can leave your pension fund where it is and take out chunks of money as and when you need them. 25% of each withdrawal would be tax-free.
TAX-FREE CASH IMPORTANT INFORMATION
Here's what you need to know
You can take all of your pension savings as a cash lump sum or just your tax-free 25% cash lump sum and the money is yours to spend however you like.
Any balance above the 25% tax-free sum will be added to any other income you have and taxed.
Taxable pension income includes earnings from employment or self-employment, investments, the state pension and other taxable benefits and income, such as money from a property rental.
People with small funds, where the income their fund can generate may make little difference to their standard of living, could be tempted to take their entire pension fund as a cash lump sum.
The amount you take over 25% is added to your income and taxed. You will still need an income to live on in retirement and Inheritance Tax may be payable on money remaining on your death.
The decision to allow people to access extra cash could be reversed and you could use the money to buy products that pay a tax-free income.
Any references we make to taxation are based on our current understanding of current legislation and HM Revenue & Customs practice, which can change.
Tools and Calculators
Our tools are here to help with your pension and retirement planning
Pension income calculator
In a few easy steps, see how your savings are shaping up and what income you could get in retirement.