Taking your saving pot all as cash in one go – tax implications

You can take your whole savings pot as a one-off cash lump sum. Although this may feel like the best option, you may wish to consider possible tax issues which may affect you.

Once you turn 55, you’ll need to think about:

  • When you want to take your retirement savings
  • How you want to take your retirement savings

When's the right time?

You can start taking your TPT savings any time once you’ve reached age 55. Remember though, unless you have other savings or income, this money will need to last for the rest of your life.

How to take your savings

You can choose how to use your retirement savings from one, or a combination of, the following options:

  1. Buy a guaranteed income (‘annuity’)
  2. Draw a flexible income – the ‘drawdown’ option
  3. Take all of your savings pot as cash

Regardless of which option (or options) you choose, you are able to take 25% (or a quarter) of the total value of your savings as a tax-free lump sum.

You can also read out step-by-step guide to choosing the right retirement option for you here.

Take your savings pot all as cash

If you choose to take your savings pot as a cash lump sum, this will be taxed as if it were income (25% will be tax free, the rest will be subject to Income Tax).

Depending on your total cash lump sum amount and whether you’re receiving other income (such as from other pension savings, or employment if you’re still working), then a cash lump sum could put you in a higher tax-bracket and land you with a higher tax bill.

Every member has a personal allowance which means they can receive an income of up to £12,500 each year, which is not taxable. So, if a member only has income paid to them either below or the same as the personal allowance, they do not pay income tax.

On the higher end, if the total taxable income after taking away the Personal Allowance is larger than £37,500 a year, then any income over this is taxed at 40%.

Here are some examples to help you:

Sam is a 67 year old member who has a savings pot of £35,000 and wishes to take his whole pot as cash. Sam has no other income other than his State pension. The first 25% of his pot is paid to him tax free, the table below shows how the rest of his pot (the 75% left) would be taxed.

What does this mean for Sam?
From the £35,000, Sam will receive £30,496.56 in cash. Sam will then have to pay £4,503.44 in income tax.

Karen is a TPT DC member and has a savings pot of £100,000 and wants to see the difference in tax she has to pay if she takes it all as cash or takes it as smaller cash lump sums.

What does this mean for Karen?
The difference is that if Karen wanted to take it as one cash lump sums, she would have to pay £21,006.88 in tax. She would however receive £78,993.12 in cash from her savings pot of £100,000.

If Karen only took £30,000 out of her savings pot, she could reduce her tax bill by 13%.

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