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Taking cash at 55

Many pensions allow you, from the age of 55, to take up to 25% of your savings as tax-free cash. However, there are a few important things to think about.

What you need to know

Different pensions allow you to access your tax-free cash in different ways. The way you take it can depend on the type of pension you have now and how you might want to access your pension savings in the future.

Your options for taking tax-free cash

Once you’re eligible you can withdraw your tax-free cash any time or leave it where it is and include it in your retirement plan. Withdrawing it in small portions over several years could make your overall income more tax efficient.

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Remember of course that your pension is intended to provide income during your retirement. So always think carefully about whether you really need to take that lump sum and, if you do, how much will be left in the pot.

Take care when taking out more

If your 25% tax-free cash isn’t enough, you can withdraw as much as you want alongside it, but this will be subject to Income Tax.

If you take more than the 25% tax-free amount, or if you take multiple lump sums, then, for any future contributions, your annual allowance (the amount you can pay into your pension pots each year and receive tax relief on) could drop from £40,000 to £4,000. Find out more about this in our MPAA factsheet.

So keep this in mind if you plan to continue adding to your pension pots. Our pension cash calculator can help you work out the impact tax may have on your withdrawal.

What to consider

You may take your tax-free cash before you retire; or while you continue working and contributing to your pension; or at the point of retirement. Whatever your circumstances, here are some things you should consider:

  • Leave provision for income in a retirement that could last 20 years or more.
  • If the total of your pensions reaches £1.0731 million, the lifetime allowance rules could see you facing unwelcome tax charges.
  • If you’ve changed jobs several times during your career, you probably have multiple pension pots. When you want to take your tax-free cash, this may be the time to bring your pensions together so you only have one pot to manage.
  • If you’re thinking about taking your tax-free cash, but haven’t decided how to use it you should consider keeping it in your pension pot.
  • Taking your tax-free cash is just one part of your retirement income plan. When you want to access more money from your pension you have a number of options.

If you want to continue saving into your pension after taking cash from it, there are some things to consider:
 

  • If you build up further tax-free cash that isn’t taken before you reach 75, your beneficiaries may have to pay tax on that money.
  • There may be a limit to how much you’ll be able to contribute in future and still get tax relief on (your annual allowance).
  Your annual allowance
If you only take part of your tax-free cash £40,000
If you take all of your tax-free cash £40,000
If you take more than your tax-free cash £4,000*
If you take lump sums (using UFPLS ) £4,000*

Need some help?

Fidelity Pensions Service Centre

If you’re unsure about any of your retirement income options and would like to find out more about your Fidelity pension, call our Pensions Service Centre.

0800 3 68 68 68

Pension Wise

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. Guidance is available at pensionwise.gov.uk or over the phone.

0800 138 3944