Take it all in cash

Jill’s story – 66 years old

Jill is looking to take her pension pot as a cash lump sum and use it to help clear her debts. She knows 75% of it is taxable, but thinks this is a better option than paying interest on her debts.

Jill’s full story

a year and . She has significant debt and is keen to pay it off before she retires.

She’s planning to take all . She’ll get 25% tax-free and despite the tax she’ll have to pay on the other £30,000, it will still leave her with enough to pay off her debts. Although Jill knows this will leave her without any pension income from this pot, she thinks this is a better option for her than paying the interest on her debt.

How we calculated Jill’s tax liability

Jill earns around £10,000 a year and her Personal Allowance is £12,570. She also has state pension benefits of £9,627.80 (weekly state pension of £185.15 for 2022/23) which makes her income this year £19,627.80.

Jill wants to take all of her £40,000 pension pot in cash. 25% of this amount, £10,000, will be tax-free, but she'll need to pay tax on the remaining £30,000.

The £30,000 will be taxed based on the below rates:

Income Tax Rate Estimated Pension Income Estimated Income Tax to pay

Personal Allowance to be taxed at 0% (on earnings up to £12,570)



To be taxed at 20% (applies to £12,571 - £50,270)



To be taxed at 40% (applies to £50,271 - £162,570)



To be taxed at 45% (applies to £162,570+)






The calculations are based on UK income tax bands. If you are a Scottish or Welsh taxpayer the tax relief you will be entitled to will be at the Scottish or Welsh Rate of income tax as applicable.

End of year tax position

Jill's taxable income for the year is £49,627.80 (as £10,000 of Jill's income is tax-free). This is made up of the taxable £30,000 lump sum from her pension pot, her income of £10,000 and her state pension benefits of £9,627.80.

This means Jill is due to pay £6,000 in tax, based on the standard tax rate. However, when Jill initially cashed-in the pension pot tax of £11,775.55 was deducted. Jill has overpaid tax in 2022/23 and is due a refund of £5,775.55.

Read the assumptions we’ve made

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Take cash from a pension, age 55+ (age 57 from 2028)

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