One of the retirement options available to you is to take all of your pension savings at once as a lump sum.

Cashing in your pension

You can access all your pension savings at once, similar to making a withdrawal from a savings account. However, it’s important to understand the impact that tax will have on what you receive if you choose to do this.

Other options that you have with regard to your pension include:

Your choices at retirement are some of the most important financial decisions you will make. To ensure you understand your options and can make the best decisions, you may want to consider seeking financial advice. You can find out more about financial advice and guidance on this website.

Read your retirement guide
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Applies to all our plans

More about your options

A good way to get a better understanding of your options is to watch this helpful video about your retirement choices:

What taking your pension all in one go means for you

Why might you choose this?

The earliest you can access your pension savings is when you reach your 55th birthday, an age set by the government. Creative Pension Trust gives you freedom and flexibility in choosing how to draw your pension.

Although taking your pot all in one go will not be right for everyone, there may be reasons why you choose to do this. For example, you may:

  • need access to a lump sum to meet other financial goals as you come up to retirement, like paying-off debts to reduce your outgoings
  • have other larger pension pots or are a member of another scheme that will provide a comfortable retirement income, but you cannot or don’t want to start taking those benefits yet

It is important to remember that, on average, someone who is aged 55 today will likely live into their mid-to-late 80’s. This means your pension will likely need to last you a long time and you should first consider whether your pension savings in Creative Pension Trust could be used to provide you with a retirement income.

What happens to your pension savings?

If you choose to take your pension savings out of your Creative Pension Trust account in full, we will normally close your account. What happens to your money from that point is up to you.

If you are considering putting your pension savings into a bank or building society account, it is important to remember that inflation can erode the value of your savings and you may pay tax on any interest you earn.

Will you need to review your arrangements?

No, your Creative Pension Trust account will normally be closed. You will need to consider how you will support yourself in the future and you may need to review your other financial arrangements accordingly.

Are there other flexibilities?

No, if you choose to take your entire pension savings in cash and all at once, we will normally close your account. It is important that you understand that this action may result in a significant, and perhaps unnecessary tax charge, which may substantially reduce the amount you are left with.

Are there any limits or other considerations?

Yes, there are limits that apply to this option. These are:

  • The first 25% of your pension pot will be paid free from tax. The remaining three-quarters will be treated as taxable income.
  • If the size of your pension pot is greater than £10,000* and you take benefits from it whilst actively paying into another pension scheme, the total amount you can pay in each year will reduce to £4,0001. This is known as the ‘Money Purchase Annual Allowance’.

Yes, there are additional considerations that may impact your decision making and future plans. These are:

  • Taking all of your pension benefits as cash in one go may affect any means-tested benefits you may be receiving or may be entitled to.
    For more information, visit Age UK, the Citizens Advice Bureau, or MoneyHelper, who also offer telephone and face-to-face appointments.
  • Paying a lump sum into your pension after taking tax-free cash out may be considered by HMRC as ‘pension recycling’. You may be liable to a tax penalty if this is deemed to be the case
  • In some instances, we may not be able to encash pension savings pots in full. For example, if you have exceeded the Lifetime Allowance, the total tax-free pension savings you can accumulate across all pension schemes.
    This cap is currently£1,055,000*. Unless you applied for a special arrangement previously, known as ‘pension protection’, and any amount accumulated over this cap is subject to a Lifetime Allowance charge of 55%* before it can be paid to you.

*Allowances, limits and tax bands are set by the Government and subject to annual review. All information provided is based on current legislation and HMRC rules, which are subject to change.

Can you access tax-free cash?

Yes, the first 25% of your pension pot will be paid free from tax. The remaining three quarters will be treated as taxable income.

Will your money be taxed?

Yes, although the first 25% of your pension pot will be paid free from tax, the remaining threequarters is treated as taxable income. The tax will be taken from the value of your pot before it is paid to you and you may be charged emergency tax by HMRC. You will need to settle any overpayments or underpayments with HMRC directly.

Are there income guarantees?

No, if you take all of your pension benefits as cash you will have no guaranteed income. You will need to make your own arrangements to ensure you are supported in retirement and have enough income to meet your outgoings.

What happens when you die?

When taken out of your pension, if any of your savings are still left when you die, they will normally form part of your estate. Inheritance Tax may be payable by your beneficiaries when you die.

An example

You have reached your 58th birthday and have a pension pot of £20,000. You are a Basic rate taxpayer and have decided you would like to take your pension pot out of Creative Pension Trust in one go. Because the first 25% of your pension pot is paid tax-free, you will receive the first £5,000 of your savings with no tax deduction. The remaining three-quarters of your pension pot is taxed at your highest marginal rate of tax.

As a Basic Rate taxpayer, this means the remaining £15,000 is taxed at 20%*, meaning a tax charge of £3,000 is deducted, leaving £12,000. This means the total you would receive from your pension savings after tax would be £17,000.

However, if you were already a Higher Rate taxpayer, or taking your pension in full pushed you into the Higher Rate tax bracket, the remaining three-quarters of your pension pot would now be taxed at 40%*, the Higher Rate of Income Tax. The tax charge would therefore be £6,000, rather than £3,000 and the total payable to you after tax would therefore be £14,000.

Basic Rate taxpayer Higher Rate taxpayer
Total pension pot to encash £20,000 £20,000
First 25% of pension pot paid to you tax free £5,000 £5,000
Remaining three-quarters to be taxed £15,000 (at 20%) £15,000 (at 40%)
Tax payable £3,000 £6,000
Value after tax paid £12,000 £9,000
Total paid to you £17,000 £14,000

*Allowances, limits and tax bands are set by the Government and subject to annual review. All information provided is based on current legislation and HMRC rules, which are subject to change.

Important information about pension investments and retirement:

  • The value of your investments may go down as well as up
  • As with all investments, you may not get back what you initially invested

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