Taking the Whole Pot as Cash – Tax Implications
Taking the Whole Pot as Cash – Tax Implications
You can exchange your entire defined contribution (DC) pension fund (including a DC AVC fund) for a single lump sum. However, this may have tax implications that you may not have considered.

Example 1


A 65 year old member has a pension fund of £35,000 and wishes to take their whole fund as cash. The member has no other income other than their state pension. The first 25% is paid tax-free, the table below shows how the remainder would be taxed.
Example-1-Worked-Example

In this circumstance, the member pays £4,668.76 in tax and receives only £30,331.24 in cash from their total fund of £35,000. Every member is able to receive an income of up to £11,000 each year, which is not taxable. This means (assuming no changes to the personal allowance or tax thresholds) that if the same member takes nine payments of £2,906.20 and one payment of £94.20 over ten years (in addition to their 25% tax free cash) that they would not have any tax to pay. This is because the state pension of £8,093.80 plus a cash payment of £2,906.20 from their fund would be equal to the Personal Allowance.


Example 2 – Larger Pension Funds
If the total taxable income after deduction of the Personal Allowance is larger than £33,000, then any income over this is taxed at 40%. If the same member shown in the example above had a total fund of £70,000, due to being taxed at the higher rate of 40%, they would pay £13,237.52 in tax and receive only £56,762.48 in cash from their total fund of £70,000. Before drawing your pension fund as cash, your own circumstances should be considered and guidance should be sought.
Example 2 – Larger Pension Funds

Further Information on Retiring

Receive free, impartial guidance from the Government.

Learn More about Your Retirement Options

Free, impartial money advice from the Money Advice Service.

Get Advice

We strongly suggest that all members take financial advice or guidance before making retirement decisions. Unbiased is a list of independent financial advisers in your area.
User Menu Preloader
User Menu Preloader
User Menu Preloader