Take it all as cash (2024)

While up to 25% of the value of your pension can be taken tax-free, the rest is taxed as income. Remember, this means it could push you into a higher tax bracket than normal for the tax year that you take it in.

Before you take a full encashment, think about whether you could pay less tax by taking smaller amounts over more than one tax year, or perhaps waiting until your other income is lower.

We will deduct tax at the emergency rate if you choose to take your pension this way. This might mean you pay more tax than you’d expect. You’ll need to contact HM Revenue & Customs (HMRC) to claim any refund (or pay any extra tax due). You can use ourtax calculatorto see how much tax might be taken before you receive your cash.

Your tax treatment depends on your individual circumstances. Your circumstances and tax rules may change in the future.

The annual allowance is the total that can be paid into any pensions you have, each tax year, before you have to pay a tax charge. The annual allowance for the 2023/24 tax year is £60,000.

Once you take all of a pension as cash, the annual allowance is replaced by a lower allowance called the Money Purchase Annual Allowance (MPAA). The MPAA for the 2023/24 tax year is £10,000.

If your personal pension policy is worth less than £10,000 you may be eligible to receive what is known as a "small pot" payment when you fully encash your policy.

With this option, 25% is tax free and the remainder is subject to Income Tax. However, the value encashed does not count against your lifetime allowance. And receiving this type of payment does not trigger the MPAA.

We will deduct tax at the basic rate of 20% if you choose to take your pension this way. This might mean that you pay more or less tax than you’re due. You’ll need to contact HMRC to claim any refund (or pay any extra tax due).

You are only allowed to take three payments like this in your lifetime. It's important to remember the rules around this may change though. Some workplace pensions have a similar type of "small pot" payment, but slightly different conditions apply.

Choosing how to take your money is a big decision. Pension Wise from MoneyHelper is a free and impartial service that helps you understand your options for using your pension. It’s a government organisation that offers clear guidance online or over the phone. To find out more or book an appointment visitmoneyhelper.org.uk/pensionwiseor call0800 138 3944.

If you’re unsure or need more help to make sure you know which option is right for you, we recommend that you speak to your financial adviser. If you don’t have one, you can visitour find a financial advisor pageto find one. Advisers will normally charge for their advice.