Can You Take All Your Pension at Once?

VIDEO: AJ Bell's Tom Selby answers all your pension FAQs

Holly Black 22 September, 2021 | 10:05AM
Facebook Twitter LinkedIn



Tom Selby: Can you take all your pension savings out at once? I'm sure that's something that lots of people will be thinking about. It depends on the type of pension you have. So the state pension pays an income when you reach state pension age, and there's no mechanism to cash out that fund. So you just receive the income that you'd get from the state. Defined contribution pensions where your retirement pot is invested in things like stocks, shares and bonds can be accessed from age 55, with a quarter of the money available tax free, and then rest taxed in the same way as income. So once you reached age 55, you have total flexibility over how you spend your money. The age at which you can access your defined contribution pension is due to rise to 57 in 2028.

It's also possible for those with defined benefit pension. So that's where you are paid a retirement income guaranteed by your employer based on the number of years that you've worked at the company, to transfer to a defined contribution scheme, and then access the money flexibly from age 55. Now defined benefit pensions are extremely valuable, and so you shouldn't take the decision to transfer out of them lightly. If you're transferring from a defined benefit scheme worth £30,000 or more, you'll need to take regulated financial advice before moving your money. And finally, annuities where a guaranteed income is paid by an insurance company cannot usually be cashed out. Now that's how it works.

It's probably worth touching on whether or not you should be thinking to cash out your money at the earliest possible opportunity. And there are various reasons why this should come with a health warning. First of all, if you access your money from age 55, then you'll have to think about how you're going to manage your retirement pot over a longer period of time. Clearly, if you're age 55, it's possible that you'll have 40 or 45 years more to live. If you're taking your money out of the pension, then you'll have to think about how you're going to fund your income needs over the long term.

Secondly, tax. So if you take all your money out at once, then you might pay more money to the taxman then you possibly want to do. Now a quarter of your withdrawal will be tax free, the rest will be taxed in the same way as income. So if you take it all out, then you may find you're pushed into a higher tax bracket. Thirdly, if you access taxable income from your pension, then you'll trigger that money purchase annual allowance so that means that the amount that you can save each year in a pension will be reduced from GBP40,000 to just GBP4,000.


And finally, you'll be taking your money out of an environment which is tax efficient. So where you don't pay things like capital gains tax and you usually not pay inheritance tax in an environment where there will be those taxes to pay. So you can cash out your pension, but you should think really carefully before doing it.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Holly Black  is Senior Editor,


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures