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At a glance

If you choose to take all of your pension account out of the Plan as a cash lump sum, arrangement, you’ll have:

  • One cash lump sum – based on the value of your pension account.
  • Tax-free cash – the option to take up to 25% of each lump sum as tax-free cash.
  • To move to a Drawdown arrangement – in order to take multiple cash lump sums.

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Does this option meet your needs?

We don’t regularly think about the financial implications of getting older, such as the possibility of needing care or how long you’ll live for. But as you approach later life and need to make a decision about your retirement income, it is important to think ahead.

Only you know your financial circumstances – for example, whether loans or mortgages still need to be paid off and the sort of needs you may have later on.

On average*, 65-year-olds in the UK live until they are:

Men: 84
Women: 86

*Office for National Statistics: National life tables - September 2018 (latest release)

Things to consider

Here are some things to help you consider which options will be right for you. The items highlighted in orange are the most relevant when considering taking a cash lump sum:

Tax

Tax-free cash lump sum

You can take some of your pension account as tax-free cash (usually up to 25% of the value).

Income (subject to tax)

  • The remainder of your cash lump sum is taxed at the highest rate of income tax that applies to you for that year (20%, 40% or 45%).

  • Taking all of your benefits as a single cash lump sum is likely to increase the amount of tax you pay as the lump sum will increase your income in the tax year you take your benefits.

  • You may need to pay further tax charges on any investment returns generated by investing the cash lump sum outside of a pension / Drawdown arrangement.

Future retirement savings – warning!

  • Once you have started to take taxable withdrawals, the amount that you (and your employer on your behalf) can save into a defined contribution pension in future without incurring a tax charge will reduce to £4,000 a year, due to a restriction known as the Money Purchase Annual Allowance.

  • You will need to consider this if you are planning to contribute to a pension in future.

  • You will need to make sure that you tell any other defined contribution pension arrangements that you are continuing to save into that you are subject to the Money Purchase Annual Allowance so that they can assess your contributions against this lower level.

  • To assist you with this notification, your pension provider should send you a ‘flexible-access statement’ within 31 days of you first taking a taxable withdrawal. You will then need to let your other pension providers know within 13 weeks of receiving your ‘flexible-access statement’, otherwise you may be subject to a fine.

How you can take a cash lump sum

It is possible to take a single cash lump sum minus any taxes straight from the Plan. You will be provided details of how to do this when you request a retirement quote.

Meet Girish

Girish always knew he wouldn’t stay in this job for long. Having worked for 30 years at his previous employer he’d built up a large defined benefit pension. But when he’d been made redundant unexpectedly a few years ago, Girish had just a little more time to go before he could retire. Now that day had come and he could start receiving his pension.

With Girish’s other pension providing sufficient income in retirement and only a small DC pension account, Girish decided to take his whole pension account as a single cash lump sum, even though he knew he’d pay tax on 75% of it.

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