Tax-free cash lump sum

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 £12961.32 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)

£12,961.32 per year

OR

Estimated tax-free cash lump sum

+

Reduced pension after taking cash

£62,722.00

£9,408.36 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.