How do I cash in my pension?
When you reach the age of 55 (rising to 57 from 2028) you have several options to access your money from your pension.
1. Take a lump sum out of your savings
The first 25% of your cash withdrawal is tax-free. If you want to take more cash, you have to pay income tax on it, as you didn’t pay income tax when you put money into your pension plan. If you take all of your pension savings in one go, you might end up in a higher tax band, therefore paying more income tax.
2. Convert to a regular income
If you decide to receive a regular retirement income from your pension pot (annuity), you can ‘sell’ your pension pot to an insurance or pension company. They’ll then calculate how much income you’ll receive every year until you die. Although this might sound a strange arrangement, the advantage is that you’ll receive a consistent income. The annuity company carry the risk of paying out more than what was in your pension pot, but all of this will of course come at a cost.
3. Take regular smaller cash amounts
If you want to be in control of your pension savings, you can decide to withdraw smaller amounts on demand instead of giving all your savings to an annuity company who decides how much you’ll get.
Some benefits of taking this approach include that you can:
- withdraw as much as you need, as often as you like;
- if you plan ahead, you can avoid going over the higher tax band, avoiding a higher tax rate on your cash withdrawal; and
- when you die, the remaining pension pot may be passed over to your chosen beneficiaries (either people, charities, or both).
4. Don’t cash in your pension and leave it for now
Most modern pension plans, such as the PensionBee plans are invested in a mix of shares, property, bonds and cash. If you’re 55 years old (rising to 57 in 2028) and still employed, it might be an option to leave your money where it is. The longer your money is invested, the more likely it is that your pension pot will grow.
If you’re not sure which plan to choose, we’ll automatically invest you in one of our two default options:
- our Global Leaders Plan if you’re under 50 years old; or
- our 4Plus Plan if you’re aged 50 or over.
Things to look out for when cashing in your pension
- Bear in mind you’ll have to pay tax - you didn’t pay tax on your pension contributions, so the government will charge income tax on the ‘income’ you take out. The first 25% will be free, anything above will be taxed. When you consider other income such as the State Pension, your pension cash withdrawal might be taxed in a higher tax band.
- Taking cash from your pension pot affects how much you can take out later - the longer you can keep your money invested, the more chance it will have to grow.
- Take financial advice if you’re unsure about the options available for cashing in your pension - but make sure you’re clear on what an Independent Financial Adviser (IFA) might charge you. There’s also the option to access the Government’s free impartial Pension Wise service if you wish.
Manage your money with PensionBee
Moving all of your pensions into one simple plan can help you keep track of how your savings are performing. Rather than managing multiple pension pots, PensionBee can help you take control of your savings by bringing everything together in one place. Our Pension Calculator can help you visualise how regular and one-off contributions can help you reach reach your retirement goal.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2025
