Taking cash from my pension

You’ll have the freedom to take cash from your pension pot whenever you want, from age 55 (may be subject to change). Take some or take it all – the choice is yours.

Could taking cash from my pension be a good thing?

Here are some of the advantages of taking cash from your pot:

Take tax-free cash – The first 25% you take as cash is normally tax-free. You’ll pay income tax on the rest.

Stay flexible – You can keep your options open

  • Dip in to your savings anytime and as often as you like from age 55 (may be subject to change)
  • Convert to a guaranteed income when it suits you using your remaining pot
  • Take a flexible income at any time

Support family – When you die, any pot which remains can be passed on. Who receives it is at the discretion of Standard Life. You can let Standard Life know who you would like it to be paid to by completing an expression of wish form. As Standard Life decide who receives the pot, it is normally paid free of inheritance tax.

  • If you die before age 75, payments out will normally be free of income tax
  • If you die after age 75, payments out will normally be charged income tax at the beneficiary's marginal rate

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 so you could get back less. Taking cash isn’t suitable for everyone.

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. 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.

Consider the tax implications

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 pension could be restricted

Under Government rules, when you start taking flexible income withdrawals, this will restrict the future payments you or an employer can make to any of your money purchase pensions without potential tax consequences. Your annual allowance becomes £4,000 in total across all money purchase arrangements. This pension plan is an example of a money purchase arrangement. This restriction will not apply if you are only accessing your tax free cash entitlement.

When you flexibly access, you will get a notification from your pension provider which will explain more about this limit and what you need to do.

It's important to note that this reduced annual allowance only applies to money purchase (also known as defined contribution) pensions, the overall annual allowance remains £40,000 across all types of pension.

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.

Find out more (PDF, 190KB)

 

Flexible income

Flexible income, or drawdown, gives you the freedom to choose your own level of income and the flexibility to suit your personal needs.

 

Guaranteed income

This is a guaranteed income (sometimes known as an annuity) that's paid for life. It’s easy to set up with no fuss after that.

 

Why leave it for now?

You don’t have to take money out of your pension straight away. You could benefit from leaving your money where it is. However, your money remains invested and charges are still deducted. You could get back less than you leave in.

To sum up

Tax-free cash The first 25% you take as cash is normally tax-free. Income tax Once you go over your tax-free cash limit you’ll pay income tax on the rest.
Flexibility Dip in to your savings anytime from age 55 (may be subject to change) onwards or take a flexible income with your remaining pot or convert to a guaranteed income. Payments into any pension could be restricted Once you go over your tax-free cash limit this normally restricts the payments you or an employer can make to a money purchase pension without incurring potential tax consequences.
Support family Pass on your remaining pot, normally inheritance tax free when you die. No guarantees You could run out of money if you withdraw too much or you live longer than expected. The more you take now the less you’ll have in the future.
Stay invested Your remaining pot will stay invested, giving potential for future investment growth. This also means the value of your pot could fall. You could get back less. Charges will also continue to be deducted.    

Tax rules and legislation can change. Any information given is based on our understanding of law and current HM Revenue & Customs practice, as at April 2018. Your own circumstances also have an impact on tax treatment.

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

Access to impartial guidance

We recommend you seek appropriate guidance or advice to understand your options at retirement. You can get free guidance over the phone or face to face with Pensionwise.

Go to www.pensionwise.gov.uk or call 0800 138 3944.

The Money Advice Service (MAS) guide is also available on the Pensionwise site.