Taking your pension pot in cash

Small pension pots

If you have a smaller pension pot of less than £10,000, you can now take the entirety as a cash lump sum.

This process is sometimes referred to as trivial commutation . You can convert up to three individual pots in this way, making it a viable decision for people who have contributed to a number of pension schemes over the course of their working lives. You can take up to 25% of these small pension pots as tax-free cash, while the rest will be subject to income tax charged in line with your personal rate.

Small pensions are generally quite low value when it comes to purchasing annuities, so taking this cash up-front may make more sense if you have debts you’d like to clear, wish to put together a deposit for a property, or want to make some other one-off purchase.

Combining your pension pots

If you have several of these smaller pension pots, it may make more sense to combine them and use them to buy an annuity or put them into income drawdown. The government offers a free pension tracing service to help you track down any smaller pension pots you may have lost track of over the years.

Pension reforms 2014 – accessing your whole pension

One of the most significant pension reforms proposed by the government as part of the 2014 annual budget is allowing people total, unrestricted access to their pension funds. This is currently expected to come into effect in April 2015, and will offer much greater flexibility for retirees.

Under current rules you can take up to 25% of any pension pot as tax free cash, but for pots larger than £10,000 any withdrawals after this will be subject to a 55% penalty tax. This penalty tax is expected to be abolished as of April 2015 – with retirees instead being charged at standard income tax rates of 20-40%.

How can speaking to an independent financial advisor help?

If you’re retiring after April 2015 and are interested in taking your whole pension as a cash sum, we advise you to consult an independent financial advisor at the earliest opportunity to discuss your long-term plans and the potential tax implications of accessing your entire fund at once.

The new rules around pensions are still being finalised, so an independent advisor will be able to offer the most up-to-date information, as well as impartial, plain-English advice about your retirement options. It may be that an annuity or income drawdown still makes more sense for your circumstances than taking all of your savings up-front, in which case your advisor can make personally tailored recommendations and search the whole market for the best quotes from the UK’s leading providers.


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If you have any questions or concerns, call us on 0800 008 6065 to speak to a member of our team.