Taking a full and partial lump sum

How it works

You can withdraw all or some of your pension savings as a cash lump sum anytime from age 55 onwards and then spend, save or reinvest it as you like. You may also have the option to take benefits earlier if you have a protected low pension age, or you're unable to work due to ill-health (your scheme will have its own definition of what ill-health means).

Please bear in mind that the main purpose of your pension fund is to secure your financial future. Unless you budget accordingly, or have other investments to give you an income, there's a risk that your cash lump sum may run out before the end of your lifetime.

It's also worth considering whether a full cash lump sum is the most tax-efficient way of taking your pension. Although 25% of the cash lump sum is tax-free, the balance is taxed as income which may put you in a higher tax bracket, especially if you take it all in the one tax year. The amount of tax you'll pay depends on your individual circumstances.

Full and partial cash lump sums:

Give you the money in your bank account to spend or reinvest.
Don't guarantee an income for life.
Don't offer the guarantee of a death benefit.
Do trigger a reduction in the amount you can pay each year into money purchase pensions without incurring a tax charge (currently £10,000 each tax year).
Count towards your lump sum allowance and lump sum and death benefit allowance. Any cash lump sum taken which exceeds either of your allowances will be taxed/treated differently from described above. You can find out more about this at GOV.UK page
May be less tax-efficient than taking regular income payments if the cash lump sum pushes your income into a higher tax band in a particular tax year.

Things you should think about before taking a full or partial cash lump sum

If you're not sure if taking a full or partial cash lump sum is right for you, you can use Pension Wise, a free and impartial government service provided by MoneyHelper that offers guidance about your retirement options. The Pension Wise service is available online, by phone 0800 138 3944 or by face to face appointment. If you'd like advice tailored to your individual circumstances you should speak to a financial adviser. Please note they will charge you for their advice. If you don't have a financial adviser, you can visit MoneyHelper to find the right one for you.
What happens if your money doesn't last to the end of your lifetime?
Do you have other income for your retirement?
If you're taking a partial cash lump sum how much will you need if you want to convert the remaining fund into a retirement income?
Do you need the money now?
Taking a cash lump sum may put you in a higher income tax bracket.
Do you have a partner or dependants that rely on you financially?
The value of an investment, and any income from it, can fall as well as rise and isn’t guaranteed. You could get back less than you invest.
You must have reached the normal pension age, currently 55 (or your protected pension age, if you have one) or the ill-health condition is met.
To be eligible for a partial withdrawal you must have had a quote in the last 90 days and for full withdrawals this is 12 months. You can request a quote using our online form, selecting the retirement quote option, or you can contact us.
We need to confirm your identity when you take your pension benefits – we can’t process your request without doing this. We’ll try to complete our identity checks electronically. Where this isn’t possible, we’ll contact you and ask you to send us certified copies of two identification documents. This may increase the time the request will take. For more information of the types of documents we may need, please visit our certified documents FAQ.
Once you send your request, we need to move your funds into cash and then transfer by BACS to your chosen bank account. This process can take up to 14 working days.

The amount of tax you'll pay depends on your individual circumstances. This information is based on our understanding of current, taxation law and HMRC practice, which may change.

How do you apply for it?

You can apply for a full or partial cash lump sum using our online form.

Alternatively, you can use the paper form you received with your retirement quote. You can request a quote using our online form, selecting the retirement quote option, or you can contact us.

Are there cancellation rights for a full and partial cash lump sum?

No – there are no cancellation rights for full or partial cash lump sums. Once a full or partial cash lump sum has been paid, there’s no way to undo this.

A full and partial cash lump sum are taxed as follows:

25% is not liable to tax, (i.e. it is paid tax-free).
75% is taxed as pension income in the same way as a pension paid under a registered pension scheme. This means that the payer of the lump sum will deduct and account for income tax under the requirements of the PAYE regulations.

Unless a tax code is already held for you, when you take your first lump sum, you’ll pay tax at the emergency rate on the taxable portion of the lump sum.

HM Revenue & Customs (HMRC) require that the emergency tax code should operate on a month one basis. This means that one twelfth of the personal allowance for that tax year will be allocated towards it. As a result, you’ll only get a maximum of one month’s tax-free allowance against the first payment regardless of when it occurs in the tax year. The personal allowance for the 2022/23 tax year is £12,570, so the one month allowance is £1,047.50. You can find the personal allowance at GOV.UK. Please note, if you’re a Scottish taxpayer, the emergency tax code is applied in the same way as it is for taxpayers in the rest of the UK.

Here’s an example (of the overall tax position):

Hector is aged 62 and has a fund of £80,000 and wishes to take the full fund as a lump sum. He'll get £20,000 tax-free, with £60,000 taxed at his marginal rate. Assuming this is his only income, then he'll fall into the higher rate of tax and get £68,500 in his hand after tax*.

£20,000 tax-free + £60,000 taxed Tax = (£12,570 x 0%) + (£37,700 x 20%) + (£9,730 x 40%) = £11,432 £60,000 - £11,432 = £48,568 £48,568 + £20,000 (the tax-free bit) = £68,568

*Tax calculation uses the UK tax rates and allowances which are due to apply from 2021/22 up to and including the 2025/26 tax year. The results for a Scottish taxpayer will be slightly different due to the different tax rates and bands from the rest of the UK.

However, it’s important to note that if this is the first partial or full lump sum that Hector is taking, it’s likely that the provider will not hold an up-to-date tax code and the full or partial lump sum will be taxed using an emergency tax code.

So, using an emergency tax code, the tax deducted will actually be as follows (the bands have been rounded in this example):

£20,000 tax-free + £60,000 taxed Tax = (£1,047 x 0%) + (£3,141 x 20%) + (£9,358 x 40%) + (£46,454 x 45%) = £25,275.70 £60,000 - £25,275.70 = £34,724.30 £34,724.30 + £20,000 (the tax-free bit) = £54,724.30

Hector will have two options to reclaim the overpaid tax (as a result of using the emergency tax code). He can wait until the end of the tax year as a tax refund will be created as a result of the information submitted in his tax return, or he can reclaim the overpaid tax from HMRC during the tax year using the appropriate claim form.