Tax free lump sum and pension pot

Stromtrooper

Hi. I am 55 next year and am considering my options. I have four private pensions, two larger pots and a couple smaller. Am I able to take 25% tax free cash out of all my pension pots at 55? I assume I can then leave the rest of the funds (75%) in my pots at this point to mature further so I can take regular monthly amounts when I’m ready to do so in the future? Thank you.

Marcon

Stromtrooper said:

Hi. I am 55 next year and am considering my options. I have four private pensions, two larger pots and a couple smaller. Am I able to take 25% tax free cash out of all my pension pots at 55? I assume I can then leave the rest of the funds (75%) in my pots at this point to mature further so I can take regular monthly amounts when I’m ready to do so in the future? Thank you.

If these are all defined contribution schemes, then yes, you can take 25% from each pot when you reach 55, and leave the balance invested.

Just because you can do so doesn't mean it's a great idea. Unless you have an immediate use for the funds, you're taking them out of tax-favoured environment and there's only so much you can put into your ISA each year.

dunstonh

 I assume I can then leave the rest of the funds (75%) in my pots at this point to mature further so I can take regular monthly amounts when I’m ready to do so in the future?

By taking the 25% out early, you are restricting the options and potential tax efficiency in retirement.  i.e. the lack of tax free cash in your retirement years will mean more tax being paid then which will increase your gross draw to meet your net spending needs.

Taking a quarter of your retirement provision to spend in your working years is not often considered a good idea unless there is good justification for doing so.

shortseller09

Stromtrooper said:

Hi. I am 55 next year and am considering my options. I have four private pensions, two larger pots and a couple smaller. Am I able to take 25% tax free cash out of all my pension pots at 55? I assume I can then leave the rest of the funds (75%) in my pots at this point to mature further so I can take regular monthly amounts when I’m ready to do so in the future? Thank you.

Yes, up to a maximum of £268,275

leosayer

You also have the option of starting an annuity with some or all of your remaining pots after the tax free cash has been taken.

It sounds counter-intuitive, but taking the tax free cash in one lump is generally not the most tax efficient thing to do. It needs to be considered in light of your full financial circumstances and needs.

Albermarle

You may benefit from reading this and booking an appointment with PensionWise.
Help with taking your pension | MoneyHelper

Also if you look at the websites of your pension providers, often they will have good explanations of your options( some better than others)