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.
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 £1,073,100 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*|
* This is called the money purchase annual allowance (MPAA). It applies when you take money out using ‘pension freedoms’ - withdrawing taxable income or lump sums (UFPLS) from your pension. The MPAA is £4,000.
Note that if you had earnings above £110,000 from 6 April 2016 the amount you can contribute and get tax relief on may also be lower than £40,000 (down to £10,000). And if you have earnings above £200,000 from 6 April 2021 the amount you can contribute and get tax relief on may also be lower than £40,000 (down to £4,000).
You can find out more about tax relief and all the allowances here
Bringing all your pensions together
If you’ve built up a number of pension pots over the course of your working life bringing your pension plans together into your workplace pension could make them easier to manage. We won’t charge you to transfer to us, but please note there may be exit fees or penalties when transferring from your existing provider. Once you’re ready, you can log in to begin the process.
Advantages of transferring
- Having one provider means one set of paperwork, making it easier to manage your pension pot
- Access to our innovative services to help you manage and understand your pension
- A wide choice of funds and fund providers
- Potentially lower charges, with no charges for switching funds, to allow more of your contributions to work for you
- Fewer retirement restrictions, if your Fidelity plan offers more flexibility around your pension options
Things to consider
- The potential loss of any of your existing benefits including valuable guarantees
- Keeping your pot below £10,000 could mean you’re able to take it all in one go under the small pot rules
- Check to see if there are any exit charges or penalties if you transfer out of your current plan
- Remember there is no guarantee that transferring your pension will result in a higher retirement income.
- You cannot normally access your pension until you reach the age of 55.
It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered.
To find out what else you should consider before transferring, please take a look at our section on moving your pension. If you’re in any doubt whether or not a pension transfer is suitable for your circumstances we strongly suggest that you seek advice from an authorised financial adviser.
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 Workplace Investing Service Centre 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 Workplace Investing Service Centre who can provide information on alternative options like retirement advice. Call us on 0800 3 68 68 73, Monday to Friday, 8am to 6pm.