Take it all in cash
You can normally take all of your pension as cash once you reach age 55. In 2028, the age from which you can normally take pension benefits is changing from 55 to 57.
Things you need to know about taking your pension as cash
You can take all of your total pension as a cash lump sum, however much it is.
Or if you'd rather take lump sums when you need them, you can access your pension using Partial Pension Encashment (PPE).
While up to 25% of the value of your pension can be taken tax-free, the rest is taxed as income. Remember, this means it could push you into a higher tax bracket than normal for the tax year that you take it in.
Before you take a full encashment, think about whether you could pay less tax by taking smaller amounts over more than one tax year, or perhaps waiting until your other income is lower.
We will deduct tax at the emergency rate if you choose to take your pension this way. This might mean you pay more tax than you’d expect. You’ll need to contact HM Revenue & Customs (HMRC) to claim any refund (or pay any extra tax due). You can use our tax calculator to see how much tax might be taken before you receive your cash.
Your tax treatment depends on your individual circumstances. Your circumstances and tax rules may change in the future.
The annual allowance is the total that can be paid into any pensions you have, each tax year, before you have to pay a tax charge. The annual allowance for the 2023/24 tax year is £60,000.
Once you take all of a pension as cash, the annual allowance is replaced by a lower allowance called the Money Purchase Annual Allowance (MPAA). The MPAA for the 2023/24 tax year is £10,000.
If you take all of your pension as cash, there are no special rules around what happens when you die. Any cash left simply becomes part of your estate.
If your personal pension policy is worth less than £10,000 you may be eligible to receive what is known as a "small pot" payment when you fully encash your policy.
"Small pots" are taxed in the same way as normal pension encashments, with 25% being tax free and the remainder subject to Income Tax. However, the value encashed does not count against your lifetime allowance. And receiving this type of payment does not trigger the MPAA.
We will deduct tax at the basic rate of 20% if you choose to take your pension this way. This might mean that you pay more or less tax than you’re due. You’ll need to contact HMRC to claim any refund (or pay any extra tax due).
You are only allowed to take three payments like this in your lifetime. It's important to remember the rules around this may change though. Some workplace pensions have a similar type of "small pot" payment, but slightly different conditions apply.
Choosing how to take your money is a big decision. Pension Wise from MoneyHelper is a free and impartial service that helps you understand your options for using your pension. It’s a government organisation that offers clear guidance online or over the phone. To find out more or book an appointment visit moneyhelper.org.uk/pensionwise or call 0800 138 3944.
If you’re unsure or need more help to make sure you know which option is right for you, we recommend that you speak to your financial adviser. If you don’t have one, you can visit unbiased.co.uk to find one. Advisers will normally charge for their advice.
Have a closer look at your options
You don't have to use just one option. You can combine these options in many different ways to meet your needs. Have a look at our table (PDF, 50KB) to help you compare the options.