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Should I take a tax-free lump sum from my pension?

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. 

For many people approaching retirement, withdrawing a large chunk of cash from their pension as soon as they can is a key part of the plan.

Tax-free cash is one of the most popular elements of the pension system - and it’s no surprise why. From age 55 - many years before most people will actually stop work - pension rules normally allow as much as 25% of the value of a pension pot to be withdrawn without income tax to pay.

It offers a potential cash boost as you approach retirement that can be used however you wish – whether that’s to clear debt, help grown-up children or to pay for a dream holiday home.

The attraction of tax-free cash is clear, but taking it isn’t always the right call. With a quarter of your pension pot generally at stake – a pot that’s there to support you for the rest of your life – it’s important to take tax-free cash in a way that suits you best.

The decision to take tax-free cash from a pension has taken on more importance recently due to the heavy market falls we’ve seen in the Covid-19 pandemic. If the value of an invested pension has fallen, withdrawing cash now means locking in those losses leaving investments with no chance to recover.

Here’s four key questions to ask yourself if you are approaching the point when you may want to take tax-free cash from your pension.

Do you really need the money?
What difference does it make to my future income?
You need some, but do you need all?
Are you paying income tax?

Get support with your plans

Taking your tax-free cash should be a part of your retirement plans and needs to be carefully considered.

Our retirement specialists have detailed knowledge of pension regulations, allowances and income options. If you are 55 or over and thinking about accessing your pension you can call us on 0800 860 0048, we’re available Monday to Friday, 9am - 5pm. 

You may also want to contact the Government’s free and impartial Pension Wise guidance service which can help you understand your options at retirement. You can access their guidance online at or over the telephone on 0800 138 3944. Or, of course, you can speak to an authorised financial adviser of your choice.

Important information

Eligibility to invest in a pension or ISA and tax treatment depends on personal circumstances and all tax rules may change. You cannot normally access money in a pension until age 55. 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 contact Fidelity’s retirement service or refer to an authorised financial adviser.

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