What is Cash Withdrawal?
Usually the earliest you can start taking money from your pension savings is age 55 however your existing pension provider will be able to confirm this for you.
When you first decide to access your pension savings you can choose to remain invested with your existing provider and, if they offer that facility, then select whether you would like to take some/all of your fund as a cash lump sum, or even as a series of withdrawals – this is known as Uncrystallised Funds Pension Lump Sum, or ‘UFPLS’ for short.¹
Many pension providers offer different options and so not all of them will be in a position to allow you to access your savings in this way. If that is the case, you can choose to exercise your right to shop around and find a provider who can, which is something that Age Partnership can help you with.²
How will I be taxed?
Should you choose this option, 25% of any lump sum withdrawal will be tax-free³ and the remaining 75% will be taxed as income at your marginal rate, which means that depending on the size of the pension pot, the withdrawal and any other income you are being paid, there could be a large tax bill left for you to pay.
However, depending on exactly how you choose to take your savings, there may be ways for you to reduce or even avoid a tax bill being generated, for example using Pension Drawdown instead.
Pension withdrawal (UFPLS) may be right for you if, for example:
- ✔ You have alternative sources of income or savings which can help you to fund your retirement.
- ✔ You have existing expensive debts that require a lump-sum to pay them off.
- ✔ You believe you may need the ability to dip in and out of your savings at irregular points of time in the future.
- ✔ You believe that any tax due on the withdrawal wouldn’t be excessive and would be acceptable for your personal circumstances.
¹ By taking a lump sum withdrawal your fund will reduce and the amount of money you have to turn into a future income will reduce.
² Full or partial cash withdrawal available through use of Pension Drawdown or a Fixed-Term Annuity. A 2.25% arrangement fee is required subject to a minimum of £1,395 should you choose to proceed. As well as a possible payment of £395 for a TVAS report.
³ You may be able to take more or less than 25% tax-free cash depending on your individual circumstances.