Can I cash in my pension?

Discover the things to take into account when considering cashing in your pension.

19 September 2018 - Emma-Lou Montgomery.

Find out more about your retirement income options, including drawdown, taking lump sums and annuity.

Video transcript - Can I cash in my pension?

Can I cash in my pension is a popular question and since April 2015 you have greater freedom when it comes to accessing your pension.

Commonly referred to as “pension freedom” it means you can take a tax-free lump and further income or lump sums from your pension pot, normally from the age of 55 more freely than you previously could. Instead you now have the freedom to choose exactly what you do with the money you have built up in your pension pot. Those in defined benefit schemes do not have the same options automatically available.

Since pension freedoms came in, it can be tempting for some retirees to access their cash. You can normally withdraw up to 25% of the pot tax-free. Any further money you withdraw will be subject to income tax at your highest rate just like any other earnings. There are calculators available online, like the Fidelity cash calculatorthat can help you work out how much tax you may have to pay on your pension withdrawals.

In some cases, it can be more tax efficient to take money out of your pension, as you need it, or in smaller chunks rather than as one larger lump sum. You also need to be aware that some pension providers charge a fee for making withdrawals from your pension pot, so ask about any costs involved before you make any decisions.

You also need to bear in mind that your pension pot needs to last as long as you do. Cashing in your pension pot in one go may decrease the income available to you in retirement and you need to make sure you have enough money to continue living the lifestyle you want.

Remember too, that there are other retirement income optionsavailable to you and you don’t need to choose just one scheme. You don’t have to, but you still might like to use the money in your pension to buy an annuity, which will guarantee to pay you an income for life so you’ll never run out. This might be especially useful if your essential expenses aren’t covered by other fixed income such as the state pension and any defined benefit pensions you may have.

Whatever you do, make sure to carefully consider all of your options before you do anything and consider speaking to an authorised financial adviser to make sure you find the best retirement option for you.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not normally be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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