You can exchange part of your pension for a tax-free cash sum. As you will be giving up some of your pension to fund the tax-free cash lump sum, your pension will be lower.
Using the example given here, Andrew had a total pension of £12,320.52 per year which he could take as a reduced pension with a tax-free cash lump sum as follows:
|
Total Pension (without taking any cash) |
|
£12,320.52 per year |
OR
|
Estimated tax-free cash lump sum |
+ |
Reduced pension after taking cash |
|
£59,621.00 |
£8,943.24 per year |
This example is based on Andrew retiring at age 65. The amount of tax-cash cash you can take depends on the commutation factor applicable to your age when you retire. You can take less than the maximum tax-free cash lump sum available; the reduced pension will go up accordingly.
The lump sum allowance is the maximum amount you can take as a tax-free cash lump sum. For more information, please click here.