Withdrawing cash – the pros and cons
A lot of people choose to take their tax-free cash as soon as they can – currently at age 55, although that will rise to 57 in April 2028 – just because they can.
But do you really need it right now? Money has certain tax advantages within a pension, and it doesn’t form part of your estate for Inheritance Tax (although this is due to change on 6 April 2027). So if the answer’s no, then you should consider leaving your pension savings invested. That gives it the potential to grow, and the tax-free lump sum you take out later could potentially be bigger.
Of course, if you have a good reason – to pay off debt, or help a child – then remember, you don’t have to take out the whole 25%. You can simply take out what you need and leave the rest invested for potential growth.
And if you do take the money out, give some thought about where to save it. If you put it in a general savings account, you could end up paying tax on the return. You could avoid this with an ISA but there’s a limit to what you can pay in – currently £20,000 a year.
