A tax-free cash lump sum is often considered a just reward for many years of hard saving into a pension.
But many retirement savers are unsure what to do once they are entitled to take the money.
Here are some answers to the most frequently asked questions we are asked about tax-free pension cash:
When can I access my tax-free lump sum?
From the age of 55 onwards, regardless of if you are still working or retired.
If I’m an expat, do I still get tax-free cash?
Yes you do, but the tax treatment may vary depending where you live, so take advice locally before you draw any money from your pension to ensure you are following the most tax-effective strategy.
How much tax-free cash can I take?
Tax-free cash is one of the most attractive perks of pension saving.
The rule is a maximum of 25% of your UK retirement fund is available either as a one-off lump sum or as several smaller payments over time. This applies to a Self-Invested Personal Pension (SIPP), personal pension and company pensions.
For expats with a QROPS offshore pension, some jurisdictions will allow a larger tax-free lump sum of up to 30% of the value of the fund.
If you have a civil service or public-sector pension, the tax-free sum is worked out differently because there is no savings fund to back the payment.
Should I take the money?
Only take the money if you need it. Keeping the cash invested means your savings are still growing, while stashing the money in the bank means receiving a much lower growth rate than your pension is likely to offer.
You may find you pay tax on the interest, depending on your circumstances, while growth within the pension remains untaxed.
Keeping the money invested also means your tax-free lump sum is growing as the fund grows.
Can I take my tax-free lump sum and keep working?
Yes, you can. You can still contribute to your pension, but special rules mean this is at a lower rate than if you had not taken the tax-free lump sum.
The tax-free lump sum will not affect your personal allowance or tax rates for the year.