Interactive Investor

Take a tax-free lump sum

You can take up to 25% of your pension tax-free, subject to a maximum of £268,275, even if you're not planning to take the rest until later.

Which? Recommended SIPP

Please remember, SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial advisor before making any decisions. Pension and tax rules depend on your circumstances and may change in future. 

Tax-free lump sums explained

You can choose to take up to 25% of your pension tax-free, subject to a maximum of £268,275, once you reach 55 (57 from 2028).

This is known as your 'pension commencement lump sum', or PCLS.

You can choose to take one big lump sum, or multiple lump sums amounting to 25% of your pension value.

The remaining money in your pension, and can be taken as taxable income at a later date.

Good to know

  • You can keep contributing to your pension as normal after taking your tax-free lump sum. Your contribution allowance is not affected.
  • But be aware of HMRC's pension recycling rules, which are designed to restrict the use of tax-free cash to gain further tax relief by contributing it back into a pension.
  • Once you start taking the remaining part of your pension, which is taxable, your contribution allowance is reduced to £10,000 a year. This is known as the Money Purchase Annual Allowance.

Tax-free lump sum: a simple example

  • Peter has £400,000 in his pension. He wants to take the full 25% tax-free lump sum (£100,000) to fund his semi-retirement - leaving £300,000.
  • To do this, he sets up a drawdown arrangement, but chooses to only take the tax-free cash.
  • The remaining 75% of his pension now sits in a drawdown pot, ready to be taken as taxable income at a later date. He plans to start taking a regular monthly income once he retires in 5 years.

How to take tax-free lump sums from your ii SIPP

There are no charges for withdrawing an income from your SIPP - it's all covered by your monthly SIPP fee.

  • You can easily take tax-free lump sums using your online account. Read our step-by-step guide.
  • You will need to do this every time you want to take a lump sum.
  • You don't have to take all your tax-free cash in one go. Some people take their tax-free cash in several smaller lump sums.
  • Taking your tax-free lump sum involves setting up a drawdown arrangement. This means the remaining pension goes into a drawdown pot, ready to be taken as taxable income when you need it. Learn more

Choosing investments in drawdown

When you withdraw money from your SIPP, you will need to decide how you want your fund to be invested in the future.

You can continue to choose your own investments, or you can choose from our four Investment Pathways.

These are selected by our experts to match four common goals people have when moving funds into drawdown. They also offer excellent value for money.

How can Pension Wise help?

If you have a defined contribution pension scheme and are 50 or over, then you can access free, impartial guidance on your pension options by booking a face to face or telephone appointment with Pension Wise, a service from MoneyHelper

If you are under 50, you can still access free, impartial help and information about your pensions from MoneyHelper

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