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Should you take a lump sum from your pension?

Planning on taking a lump sum from your pension? Here’s a few things to consider.
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When it comes to withdrawing money from your pension fund, it could be beneficial to come up with a plan and think about the ‘how' before you do it.

If you haven’t made any decisions yet, here’s a quick guide on pension drawdown to help you choose the right option for you.

What are the different pension drawdown rules?

The way you take your money out of your pension (aka, move your pension into drawdown), will vary depending on the type of pension you have. If you have a defined benefit pension, you will receive a specific income for life which should increase every year. If you have a defined contribution scheme, then you’ll be able to choose how you want to withdraw your funds. You can:

  • Take your whole pension in one go as a lump sum,
  • Withdraw money whenever you need it, or
  • Receive a regular income based on your pot size

Before you make your choice, it’s generally a good idea to check the rules of your workplace pension, and personal pension if you have one, as they can vary.

So, should you take a lump sum from your pension?

Well, it’s up to you, but to help you make the right decision for you, here’s a few facts about pension drawdown.

The first 25% you’ll take from your pension is tax-free and you can take this amount out in one go or withdraw it gradually. Anything taken above this threshold will be subject to tax and the amount you owe HMRC will depend on your tax band – and that’s where you need to be careful.

Once you’ve used your tax-free allowance, everything you take out will be added to the rest of your taxable income, meaning large withdrawals could put you in the higher tax bracket.

So, before taking a large lump sum from your pension, it could be wise to calculate how much income tax you’re already liable to pay, and then plan your withdrawals.

You can check the current income tax rates and personal allowance here: https://www.gov.uk/income-tax-rates.

When can you start withdrawing from your pension?

If you want to plan your pension withdrawals effectively, it’s important to consider your time frame. So: when will you be taking your money out?

Most pensions will let you dip into your pot as soon as you turn 55, but it’s always useful to check with your pension provider as rules can vary.

Although it may be tempting to withdraw funds in your 50s, you might want to consider remaining invested a bit longer.

Why? Well, it could give your money more time to grow, providing the environment is favourable.

Pensions are invested in the stock market. And if you stop your investment journey at the age of 55, the current age you can access the money in most pensions, then you might be waving goodbye to potential gains. By staying invested, there might be a chance to benefit from the markets – and the value of your investments – rising.

After all, markets go up and down for various reasons, and the longer you stay invested, the more time you could have to recover from market dips.

Plus, when you invest, you could benefit from the power of 'compounding’. This is where your profits (in the form of dividends or interest) are reinvested, and generate their own profits. Over a number of years, compounding can help boost your retirement savings, so if you want to make the most of your later life, it could be a good idea to keep up with the savings habits until you really need the money.

What do you need to do to move your pension to drawdown?

When you’re ready to move your pension into drawdown, you’ll need to let your provider know. They may ask you to fill in some forms, and then when all the admin is done, the drawdown process should start.

At Wealthify, we accept monthly drawdowns. All you need to do is contact our Customer Care team and we’ll arrange your monthly payments for you so you can fully enjoy the wonders of retirement.

For more information on pension rules and your rights, visit https://www.gov.uk/personal-pensions-your-rights.

Whether you’re at the beginning, middle, or end of your pension journey, our pension calculator can help you understand what your finances could be like in retirement.


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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