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Cash lump sum

When you come to take your pension benefits, you may have the option to take some, or all, of you pension as a cash sum.

Cash lump sum

 The rules on the cash lump sum will depend on whether your pension is in a defined contribution  scheme or a defined benefit  scheme. 

Cash lump sum from a defined benefit scheme

When you take your benefits, you will generally have the option to take a cash lump sum.

Your scheme may offer you a pension and a cash lump sum separately (particularly if you are a member of a public sector scheme). If this is the case, you generally have to take the pension and the cash at the same time. You may have the option to exchange some of your pension for more cash (up to the maximum allowed from the scheme).

If your scheme doesn't offer you a pension and a cash lump sum separately, you will normally have the option to exchange some of your pension for cash (up to the maximum allowed from the scheme). The scheme’s trustees will work out the rate at which you can convert pension into cash lump sums,  this rate will vary by age, and may vary over time.

 

Cash lump sum from a defined contribution scheme

When you open your pension pot you can usually choose  to take some of the money in the pot as a cash lump sum.

If you choose to take some of your pot as a cash lump sum, the income you can then get from your pot will be less.

As from April 2015, it will be possible to take your entire pension pot as a cash sum but you should be aware of the tax treatment.

 

Tax treatment of cash lump sums

You don’t have to pay tax on the cash lump sum, as long as you do not take more than a quarter (25%) of your benefits or pot as cash. (The proportion may be higher if you have a protected lump sum.) 

Under a defined contribution scheme, if you take more of your pot as a cash sum, the amount over the tax-free lump sum, will be taxed at your marginal rate of income tax. Your marginal rate is calculated based on your taxable income in that tax year with the amount of your pension pot over the tax-free lump sum being treated as income.

Click here to find out more about tax and cash lump sums.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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