The 2015 pension freedoms opened up a whole new set of possibilities for those with defined contribution pensions. Arguably one of the most tantalising is the ability to withdraw your entire pension pot as a cash lump sum, to do with as you will. That could be paying off your mortgage, investing the money or even splashing out on the holiday of a lifetime. In some cases you can also cash in a defined benefit \u2013 or final salary \u2013 pension. But even if you can take your entire pension pot as cash, it doesn\u2019t mean you should. In this guide, we outline the rules, why cashing in your whole pension is often a bad idea and the handful of circumstances in which it\u2019s worth considering.<\/p>
Potentially, yes. If you have a private or workplace pension, you may be able to take your entire pension in one go as a cash lump sum.<\/p>
The rules can vary between schemes though. Some pension schemes \u2013 especially workplace pensions \u2013 won\u2019t let you take your whole fund at once.<\/p>
And bear in mind that there can be significant tax implications to taking out your whole pension at once. Plus, it could increase your risk of running out of money to fund your retirement.<\/p>
Yes. For one thing, you can\u2019t cash in the state pension<\/a>. This is paid as a regular income from the time you reach state pension age. State pension age is currently 66 and due to rise to 67 by 2028.<\/p> And some pensions \u2013 especially workplace pension schemes<\/a> \u2013 may have rules which prevent you from taking the entire pot in one go. This is most likely to apply to defined benefit schemes<\/a> or defined contribution<\/a> schemes with certain benefits (such as a guaranteed minimum income).<\/p> Most personal pension schemes<\/a> will let you take the entire pot as a lump sum if you want to. Check with the provider to be certain, though.<\/p> Under usual circumstances, you can\u2019t access a personal or workplace pension until you reach the age of at least 55. If you take money out before then, you\u2019ll usually pay a huge tax penalty<\/a>. Anyone that tries to persuade you to do so is likely to be a pension liberation<\/a> scammer. The normal pension access age is rising to 57 from 2028. The default age may be higher for some defined benefit<\/a> workplace schemes.<\/p> This minimum age for taking money out of your pension applies whether you want to draw an income or to take the whole pension as a lump sum.<\/p> The only exception to the rule might be if you are unable to work due to disability or serious illness. In this case you might be able to access your pension early. If your life expectancy is less than a year, you might be able to take your entire pension as a tax-free lump sum.<\/p> There are plenty of reasons why cashing in your entire pension savings is often a bad idea. But there are also a few instances where it\u2019s worth considering. Here are some of the key arguments for and against:<\/p> Yes, that\u2019s absolutely fine. These days, many people hold money in more than one pension scheme. There\u2019s nothing stopping you emptying one pot while leaving others intact. You\u2019ll receive the first 25% of each pot tax-free (capped at \u00a3268,275). The remainder of each pot will be subject to income tax.<\/p> This might be a good compromise option. It would free up some pension cash while leaving the rest in place to fund your retirement.<\/p> The first step is to contact your pension provider(s) or the scheme administrator if you have a workplace pension. Ask if you can take your whole pension pot as a lump sum. If you can, the process should be explained to you clearly.<\/p> Even if you can\u2019t cash in your pension directly, you may be able to transfer your pension<\/a> to another provider that allows it. Again, not every scheme will allow transfers, but most will.<\/p> Exactly what needs to happen once you\u2019ve set things in motion to cash in a pension will depend on whether you have a defined contribution or defined benefit pension. The first 25% of the money you withdraw will be tax-free (capped at \u00a3268,275). The rest will be subject to income tax.<\/p> If you have a defined contribution pension<\/a>, by the time you reach age 55 you\u2019ll have built up a \u201cpot\u201d of money. This pot is intended to be used to fund your retirement.<\/p> To cash the whole lot in, the pot will be valued on a certain date. The money in the pot will be transferred into a nominated bank account. Your pension account will be closed. There may be fees for cashing in an entire pot. Once the money\u2019s in your bank account, you can do with it as you will.<\/p> If the value of your defined contribution pot is worth \u00a330,000 or more, and it has a guaranteed annuity rate attached to it, there\u2019s a legal requirement to seek professional financial advice before cashing it in. That\u2019s assuming your scheme allows you to cash it in at all.<\/p> If the value of a specific pension pot is \u00a310,000 or less, you can cash it in without triggering the money purchase annual allowance. You can also withdraw pots worth less than \u00a310,000 without incurring a penalty if your total pension savings exceed the Lifetime Allowance. Some providers that don\u2019t usually let you take your whole pension pot might allow you to do so under small pot rules.<\/p> You can use this rule 3 times for personal pensions. The rules are different for workplace pensions, so check with your provider.<\/p> Rather than having a pension \u201cpot\u201d with a clear monetary value, defined benefit pensions<\/a> pay you a guaranteed income in retirement. This income is based on a proportion of your salary while you worked for an employer.<\/p> Before you can cash in a defined benefit pension, you\u2019ll usually need to transfer it into a defined contribution pension pot. To work out how much you\u2019ll get, its value will be converted into a \u201ccash equivalent transfer value\u201d. This will take into account factors such as your age, the scheme retirement age, the cost of living, average life expectancy and the scheme costs and returns. Check with your scheme administrator how this will work and how much you\u2019d be likely to get. Bear in mind that you\u2019ll be giving up significant benefits by transferring a defined benefit scheme<\/a>.<\/p> If you have more than \u00a330,000 in your pension, you must get regulated financial advice before transferring it to a defined contribution scheme. Some defined benefit schemes won\u2019t let you transfer to a defined contribution scheme at all. This mainly applies to certain public sector pensions, such as The Teachers\u2019 Pension<\/a>.<\/p> Once the money from a defined benefit pension has been transferred, you can withdraw it as a lump sum in the same way as any other defined contribution pension.<\/p> If the total value of all of your pensions (excluding the state pension) is \u00a330,000 or less, you may be able to cash in a defined benefit pension directly from the age of 55. This is known as \u201ctrivial commutation\u201d. Under these rules, you don\u2019t need to transfer your defined benefit pension into a defined contribution scheme to cash it in. You don\u2019t have to \u201ccommute\u201d all of your defined benefit pension schemes, if you have more than one. However, you can\u2019t commute part of a single scheme.<\/p> When you withdraw your full pension, the first 25% will be tax-free. This is known as the tax-free pension lump sum<\/a>.<\/p> You\u2019ll pay income tax on the rest. The rate will depend on how much your pot is worth and whether you have any other taxable income in the tax year.<\/p> As a reminder, here are the income tax bands and rates for the 2026\/2027:<\/p>When can I take my entire pension as a lump sum?<\/h3>
Is it a good idea to take my entire pension?<\/h3>
Arguments against cashing in your whole pension<\/h4>
Reasons to consider cashing in your whole pension<\/h4>
If I have more than one pension scheme, can I cash in one and leave the others invested?<\/h3>
How do I cash in my entire pension?<\/h3>
Cashing in a defined contribution pension<\/h3>
Cashing in small defined contribution pension pots<\/h4>
Cashing in a defined benefit pension<\/h3>
Cashing in low-value defined benefit pensions<\/h4>
How much tax do I pay if I cash in my entire pension?<\/h3>
2026\/2027 income tax bands<\/h4>