In some cases, the best way to take money out of your pension is to withdraw a series of lump sums over time, instead of taking all the tax-free cash in one go. When you do this, 25% of what you withdraw is free of tax while the other 75% is taxed like any other income you earn. This way, you can make multiple withdrawals.
When you do this, it’s called taking an Uncrystallised Funds Pension Lump Sum (UFPLS for short).
When to consider this
Taking lump sums will affect your future contributions
If you think you might want to top up your pension pot in the future, for instance because you want to keep working part time, then you need to be aware that taking money out in lump sums could affect the amount you can pay in and receive tax relief on.
If you take money out in this way, you may only be able to receive tax relief on up to £4,000 a year. If you exceed this figure, you may need to pay tax to HMRC. This is known as the money purchase annual allowance (MPAA).
If you think you’ll want to continue topping up your money purchase pension pot with more than £4,000 a year after you retire, then you may want to consider other options.
The value of investments can go down as well as up, so you may get back less than you invest. Tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future.
This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please refer to an authorised financial adviser.
Pension money cannot normally be withdrawn until age 55.
Our retirement service team can explain what retirement income options are available within your existing pension plan and which are not. They can also refer you to our team of retirement specialists who can provide information on alternative options like retirement advice. Call us on 0800 3 68 68 73, Monday to Friday, 9am to 5pm.