Taking it all as cash

At the moment, from age 55, you can choose to take your pension savings as a cash payment. This is increasing to age 57 from the 6th of April 2028.

This could be all in one go or spread over a series of smaller lump sums.

The first 25% of each cash payment will be paid tax free, while the rest will be taxed as income at your normal rate.

Any money you leave behind will stay invested in your plan and aim to grow.

If at any time your needs change, you can use the rest of your pension savings to take a flexible income or to buy a regular secure income that'll be paid for the rest of your life.

When you die, any savings you have left in your plan can be passed on to your loved ones.

Things to watch out for:

If you take your pension savings as cash, your money isn't guaranteed to last forever. So if you don't manage your income carefully, it could run out before you die.

Taking large sums of money out of your plan could push you into a higher rate tax bracket, meaning you'd need to pay more tax on your pension savings.

To find out more about your retirement options, talk to your financial adviser, or visit royallondon.com/retirement

Have it all in one go or spread it out to suit you
You can take all your pension savings in one lump sum – or spread it out over a series of smaller cash payments.

Enjoy some tax-free cash
You can usually take up to a quarter of the value of your pension savings tax-free. If you were entitled to more than a quarter of the value tax-free as at 6 April 2006 you can keep this entitlement, but only if you take all your pension savings at the same time.

Give your savings more opportunity to grow
Whatever you leave in your plan will stay invested, so while your savings could grow, their value can also go down. This means you could get back less than you put in.

Keep your options open
Providing you don’t take all your savings in one go, you can always explore another pension income option.

Your savings aren’t guaranteed to last forever
If you need your savings to live on, you need to think carefully about how you’ll make your money last. Because once it’s gone, it’s gone for good.

You could pay more in tax
Taking large sums of money from your pension savings can push you into a higher tax bracket – meaning you’ll hand over more of your hard-earned savings straight to the government as income tax.

You can’t change your mind
Once you’ve taken a cash payment from your plan, you can’t usually put it back in again.

Your savings are exposed to investment risk
If you choose to leave some of your savings in your plan, they’ll remain invested. While this means your savings can continue to grow, it also means they can fall in value – so you could end up with less money to live on.

Saving into other pension plans could be restricted
When you start taking cash from your plan, if it's more than the 25% tax-free amount, the government puts a limit on how much you (and your employer) can save into this and any other defined contribution pension plans without a tax charge. This is called the money purchase annual allowance – and it’s currently set at £4,000 for the 2022/23 tax year.

Your entitlement to state benefits could be affected
The amount of cash you take from your pension savings could affect your entitlement to means-tested state benefits, this includes things such as housing benefits and council tax reductions.

If you have money left in your plan when you die, it can be passed on to your loved ones – usually free of inheritance tax. Tax treatment depends on the individual circumstances of the person receiving the payment(s).

• If you die before age 75, your pension savings can be paid to your loved ones how they like, income tax-free.
• If you die aged 75 or older, your pension savings can be paid to your loved ones how they like, subject to income tax.

*You may be able to take more than 25% if you have protected tax-free cash. If you're not sure if this applies to you, you should contact a financial adviser.

Take a look at the other options you have available.

• Secure income
• Flexible access