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 £11,613.35 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) |
|
£11,613.35 per year |
OR
|
Estimated tax-free cash lump sum |
+ |
Reduced pension after taking cash |
|
£55,260.00 |
£8,299.03 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 cash lump sum is available tax-free, subject to your pension benefits not exceeding the Lifetime Allowance (LTA) in place when you retire. For more information about tax limits, please click here.