You can usually start accessing your pension, including your tax-free cash (TFC) from age 55, rising to 57 from April 2028. Most people can take up to 25% of their total pension savings tax free, up to a maximum of £268,275 (known as the Lump Sum Allowance).
- Tax on the rest: The remaining 75% is taxed as income when withdrawn. Taking a large amount at once could push you into a higher tax bracket.
- Payment options: You can take all your TFC upfront and move the rest into drawdown or an annuity or by phasing your TFC payments over time.
- Future contributions: Once you start taking pension income, your annual allowance for new contributions falls to £10,000 (the Money Purchase Annual Allowance), but not if you only take your TFC.
If you do decide to take your TFC and enter into pension drawdown but then change your mind, while you can cancel your drawdown contract within certain timeframes, you can’t return the TFC payment, there would be tax to pay if you did. Therefore, you’ll either need to spend or invest this to maximise tax efficiency.
Your TFC can offer valuable flexibility, but withdrawing a large amount early can reduce your future income and investment growth, so it’s worth planning carefully.
This article reflects our understanding of current legislation, which may change. While we can provide information, we can’t give you advice and therefore we recommend you seek professional advice before making any financial decisions. Investments can go down as well as up, and you may not get back the amount invested. Tax treatment depends on individual circumstances and available reliefs may vary.
The resources on Your Wealth can help you find a financial adviser in your local area.