What is "cashing in your pension"?

Cashing in your pension just means taking all your savings in one lump sum. You’ll usually get the first 25% tax-free and pay income tax on the rest. You can use the cash in any way you choose but you’ll need to think about how to make the money last, and there may be other considerations too.

Things to think about

• If you take all your pension savings in one go, how are you going to make sure they’ll last throughout your retirement? Have you considered the potential cost of later life care?
• Taking a lump sum could affect any state benefits you’re entitled to, now or in the future, like pension credit, housing benefit, council tax reduction, and employment and support allowance (ESA).
• Make sure that taking the full lump sum doesn’t mean missing out on special features like guaranteed annuity rates. These could give you a higher level of income. Check with your provider.
• You can keep paying into defined contribution pension schemes but the maximum amount that you can pay in and still get tax relief, is limited to £10,000 (the Money Purchase Annual Allowance). You’ll only get tax relief if you’re under 75.
• If you access your pension benefits before your retirement date, there may be an early exit reduction fee or a market value reduction on your current policy, so your pension savings may reduce.

Understanding what tax you might pay

Taking your savings as cash comes with tax charges, so it’s important to understand how that works.  

• Normally, the first 25% of your lump sum will be tax free. The rest will be treated as income, which you’ll pay tax on.  
• HMRC might apply an emergency tax code when you take your savings. If your final tax owed is lower than what you’ve already paid, you’ll receive a refund. If it’s higher, you’ll get an additional bill. 
• The remainder of your lump sum (along with any other income) could push your income for the year into a higher tax rate. You may pay less tax if you use one of the other ways to access your savings.
• Use our tax calculator to see how much tax you’d pay if you take your pension savings as a lump sum. 

 

Get guidance and advice

We recommend you get free impartial guidance from Pension Wise, a Government service from MoneyHelper about this and other options. You should also get independent financial advice before making any decisions about how to access your pension savings. See our guide to pension help and advice.

If your policy has a safeguarded benefit such as a guaranteed annuity rate (GAR), and a transfer value of more than £30,000 you must get independent financial advice before you can cash in.

Next steps

If you’d like to take all your pension savings in one go, you might be able to use our online application process.

 

Please tell us who previously provided your policy

To make sure we give you the correct information about how to manage your policy, please tell us who it was with before it was transferred to Phoenix Life.

This will make sure the information you see is accurate for your policy.

Choose provider

If you're not sure who your policy was with before us, that's ok. We can help you find out: Find your previous pension provider