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One of the most common questions we’re asked is: “Should I take my 25% tax-free cash from my pension—and what should I do with it?”
It sounds straightforward, but the answer often isn’t. There’s no one-size-fits-all approach, and how (and when) you take your tax-free lump sum can have long-term consequences for your income, tax position, and estate planning.
In this episode of Retire Well with Wealth of Advice, we break down what tax-free cash is, how it works, and how to use it wisely as part of a broader retirement plan.
Tax-free cash allows you to take up to 25% of your pension tax-free. In most cases, the maximum amount you can take is capped at £268,275, though some people may be entitled to more through scheme-specific or individual protection.
This lump sum can be taken all at once or in stages, depending on how you access your pension.
Currently, the minimum age is 55, rising to 57 from 2028. Some individuals may have a protected pension age under older schemes, so it's worth checking if that applies to you.
DB pensions often offer you a standard annual pension with a lower or no tax-free cash amount. They then allow you to reduce your annual pension for a larger tax-free lump sum. For example:
You have two main ways to access your pension:
Once you’ve accessed it, how can you make the most of your tax-free lump sum?
As always, a few things to watch out for:
Tax-free cash is a valuable part of your retirement toolkit. Used wisely, it can give you flexibility, reduce your tax bill, and help you enjoy the retirement you’ve worked hard for.
Whether you're approaching retirement or already enjoying it, making the right decisions about your tax-free cash can have a big impact on your financial future. At Wealth of Advice, our experienced financial planners are here to help you build a retirement strategy that works for you now and in the years to come.
Get in touch today to schedule a free, no-obligation consultation and start planning your retirement with confidence.
If you want a better view of what your future could be, we'll have a chat and work out if we make a good fit for you and your financial picture.
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