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Can I take my entire pension pot in one go?

By Paul Davies

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Can I take my entire pension pot in one go?

Which? helps you identify the pros and cons of taking your whole pension fund in one go, and work out how much tax you’ll pay by taking the whole pot at once.

How can I take my entire pension in one go?

As a major part of the April 2015 pension rules changes, it became possible to take your entire pension fund in one go as cash for you to spend as you wish. However, there are considerable tax implications to consider before going for this option.

To do this, you can close you pension pot and take your fund as cash. The first 25% will be tax-free and the rest will be taxed at your highest tax rate (by adding it to the rest of your income).

There may be charges for cashing in your whole fund, and not all pension schemes or providers will offer this option. Similarly, some pension companies will require that you take financial advice before cashing in, which means you’ll need to pay the adviser a fee.

For more on this: Tax and pensions

What does it mean for me?

The main thing you need to look at if you’re thinking about taking your pension in one go is your tax situation. If your pension pot and other sources of income combined are in excess of £150,000, you will pay tax at the highest rate of 45%.

You’ll probably pay tax at source on your pension (via PAYE) and then pay too much via an emergency tax code, meaning you’ll then have to claim the money back.

Paying tax on your pension fund

Spreading withdrawals over a number of years can minimise your tax bill and mean that your tax-free entitlement is spread over several years.

Which? has created a calculator to show you how much tax you'd pay if you took your whole pot, or a chunk of it, as a lump sum.

There's more about tax on pensions in our guide to tax in retirement, which also covers allowances and the state pension.

Find how much tax you’ll pay with our calculator.

Taking your entire pension is worth considering if…

  • you need to get your hands on the money quickly
  • you’ve suffered from poor health and a guaranteed income for life might not be the best option
  • you want to reinvest your money or have quick access to it
  • you have several different pension pots and want to cash in one or two to give you more retirement income at the outset.

Taking your entire pension might not be the best option if…

  • you’re likely to spend your retirement savings in a short period of time
  • you want to avoid a hefty tax bill
  • you want a regular income for you, your spouse or any other dependents after you die
  • you’re not prepared to get financial advice first.

Member's story

case study can i take my pension pot in one go

Colin Smith, 66, from Bristol

Colin has taken a ‘mix and match’ approach to his pension – he has several pots. Since 2000, he’s received a BT final salary pension, which is linked to the Consumer Prices Index and so keeps pace with inflation.

When Colin decided to fully retire in May 2015, he then took his smaller House of Commons pension of around £20,000 as a lump sum. He contacted HMRC at that time to talk about the tax implications of taking all of his fund in one go.

With a lump sum I can pay off some debts and invest the rest as a contingency fund.

In the past, he would have had to arrange an annuity or income drawdown, or pay 55% tax if the sum were above £2,000 pre-March 2014, or above £10,000 in the run-up to the changes in April 2015.

Which? expert view

Withdrawing all of your pension fund in one go is obviously a risky strategy, particularly if, unlike Colin, you have no alternative private pension provision.

Cashing in your pension pot might seem more attractive than buying an annuity or income drawdown, but there could be an unwelcome surprise in the form of a large tax bill.

You’ll pay income tax of 40% on anything above £45,000 (45% above £150,000) in the 2017/18 tax year, so taking the pot in smaller chunks over a number of years could minimise your tax bill.

  • Last updated: April 2017
  • Updated by: Paul Davies

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