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Your options at retirement

Download our free guide to find out more about drawdown, annuities, lump sum withdrawals and how we can help you make the right choice.


Lump sum withdrawals

Taking lump sums and your 25% tax-free cash

You can take up to 25% of your pension fund without paying any tax. Many people use their tax-free cash to settle their mortgage, place a deposit on a house for their children, or simply enjoy a well-earned holiday after years of working. As long as your provider allows it, you have the freedom to take as many lump sum withdrawals as you like with anything in excess of your 25% tax-free amount being taxed as normal income.

More freedom when taking your tax-free cash

When you retire you are entitled to a pension commencement lump sum – a tax-free withdrawal of up to 25% of your total pension fund. You are now able to split up your tax-free cash into as many lump sums as you like, instead of having only one opportunity to make a tax-free withdrawal as was the case in 2014/15. By splitting up your lump sum withdrawals over several years, you could keep more of your money invested and your pension could potentially continue to grow in value. Conversely, if your investments perform badly you could have less money available in later life.

More information on staying invested at retirement

Unlimited lump sum withdrawals

Under the new pension rules it is now possible to make unlimited lump sum withdrawals in excess of your 25% tax-free amount, for example to pay off a remaining mortgage. However, this will be subject to tax at your marginal rate. In the words of ex-pensions minister Steve Webb, this means you could technically withdraw your entire pension fund to buy a Lamborghini!

“According to ex-pensions minister Steve Webb, you could technically withdraw your entire pension fund to buy a Lamborghini!”

Although this is possible, it is not generally advisable as your pension is designed to provide an income for the rest of your life. Plus, any withdrawals in excess of your 25% amount will be taxed as income at your marginal rate.

What else has changed under the new pension rules?

How much can I afford to take from my pension?

Your pension needs to provide an income for the rest of your life, so too many early withdrawals means you could run out of money later. If you are considering taking a lump sum, especially in excess of your 25% amount, you should consider taking financial advice first.

A financial planner can forecast how long your pension will last and how much you can afford to take, while forecasting the effects of inflation and a market downturn. You can book a free consultation with one of our nationwide financial planners to find out more.

Book a free consultation

Important Information

The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or get free guidance from Pension Wise. Find out more about Pension Wise.


Past performance is not a reliable indicator of future returns

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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