Many pensions allow you to take up to 25% of your savings as tax-free cash from the age of 55 (57 from 2028) up to your remaining lump sum allowance. However, there are a few important things to think about.
Important information - the value of investments and the income from them can go down as well as up so you may not get back what you invest. Eligibility to invest in a SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. You cannot normally access money in a SIPP until age 55 (57 from 2028). It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. If you are unsure about the suitability of an investment you should speak to one of Fidelity's advisers or an authorised financial adviser of your choice.
The way you take your tax-free cash can depend on the type of pension you have now and how you might want to access your pension savings in the future.
You can take all or part of your tax-free cash with the other bit moving into ‘drawdown’. Or you can make lump sum withdrawals, with 25% of each withdrawal being tax free, up to your remaining lump sum allowance, and 75% being taxed as earnings (this is called an Uncrystallised Fund Pension Lump Sum, or UFPLS for short).
If your 25% tax-free cash isn’t enough, you can withdraw as much as you want alongside, but this will be subject to income tax at your marginal rate.
If you take more cash than the 25% tax-free amount, or if you take multiple lump sums, then, for any future contributions, your annual allowance (the amount you can pay into your pension pots each year and receive tax relief on) could drop to £10,000 (known as the money purchase annual allowance; see below).
So keep this in mind if you plan to continue adding to your pension pots. Our Pension tax calculator can help you work it out.
Pension tax calculatorRemember of course that your pension is intended to provide income during your retirement. You should always think carefully about whether you really need to take that lump sum and, if you do, how much will be left in the pot and how this might impact any future contributions you may want to make. The table below shows you what happens to your annual allowance if you take more than your tax-free cash.
| Your annual allowance | |
|---|---|
| If you only take part of your tax-free cash | £60,000* |
| If you just take all your tax-free cash | £60,000* |
| If you take more than your tax-free cash | £10,000** |
| If you take lump sums (using UFPLS) | £10,000** |
* The Annual Allowance is £60,000. If your taxable earnings in the year are below this, then tax relief is limited to 100% of your earnings (or to £3,600 if you have no earnings).
**This is called the Money Purchase Annual Allowance (MPAA) and it applies when you take money out using ‘pension freedoms’ - withdrawing taxable income from your pension through drawdown or lump sums (UFPLS). The MPAA is £10,000. Note if you have earnings above £200,000 from 6 April 2020 the amount you can contribute and get tax relief on may also be lower than £60,000 (down to £10,000).
You can find out more about tax relief and all the allowances in our pension allowances section.
You may take your tax-free cash before you retire; or while you continue working and contributing to your pension; or at the point of retirement.
Whatever your circumstances, here are some things you should consider:
If you want to continue saving into your pension after taking cash from it, there are some things to consider:
Once eligible you can withdraw tax-free cash any time or leave it to be included in your retirement plan. Withdrawing small amounts over several years could make your overall income more tax efficient
Find out how taking more than the 25% tax-free amount could affect your annual allowance.
The LSA is the maximum amount of tax-free cash you can take from your pension savings in your lifetime.
Even if you’re only contributing to one pension, there’s a good chance you’ll own several more – particularly if you’ve changed jobs a few times during your career.
You can manage the retirement income and the tax-free cash from each of these pensions separately, but it can be a lot easier if you bring them all together. Then you just have one company to deal with for every aspect of your retirement income and could save on costs if our service fee is less than what you’re currently paying. If you’re thinking about transferring a pension, please read our pension transfer factsheet.
Explore pension transfersSimply get in touch to talk about your options in more detail
Decisions about taking tax-free cash could impact your future income. Talk to our retirement specialists about your options. We’re open Monday to Friday, 9am - 5pm.
The government's Pension Wise service offers free, impartial guidance to help you understand your options at retirement. Visit the website or call 0800 011 3797.
If you have a Fidelity pension and know you'd like to take tax-free cash or lump sums from your savings, you could apply to do this all online without the need for a phone call.
What does the world’s most famous investor say?
Richard Evans
Fidelity International
14 November 2024
Be sure not to make a lasting mistake with your retirement cash
Ed Monk
Fidelity International
31 July 2024
Important information - this information is not a personal recommendation for any particular investment.
