Cashing in your Pension
The 2015 pension freedoms allow you to take all of your pension savings in one go as cash. Whilst the first 25% is tax-free the other 75% will be taxed as income.
Whilst taking all your pension as a lump sum is not the best option for most people, taking smaller lump sums from your pension as a boost can be a very useful tool
Smaller Sums
Assuming you havent taken anything from your pension you can take lump sums by “crystallising” funds that haven’t been used before. Each time you do this you will receive 25% of the lump sum tax free and the other 75% will be taxed as income.
When you take benefits from your pensions you “crystalise” them and once the whole pot has been crystallised you can no longer take this type of lump sum – the whole sum will be taxed rather than just 75% of it.
You can do this as your regualr income, or you can use it as a top up if you have funds that have not yet been crystallised.
When is taking cash the right option?
Right if you:
You need a boost to your income and have funds available
You have not crstallised your whole fund by taking 25% tax free cash
Have enough in your pension to allow you to take a lump sum without adversly affecting your long term income
Wrong if you:
Want the security of a fixed, guaranteed income for life
Do not want a flexible contract and would prefer something guaranteed such as an annuity
Have means tested State Benefits as taking lum sums may push you over the threshold and cause them to reduce or stop
The tax implications of pensions withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.