With this option you spread your tax-free cash across all withdrawals you take from your pension savings. Usually, 25% of each withdrawal will be tax-free and the remaining 75% will be taxable.

Note that you get a personal allowance (the standard is £12,570 in the current tax year) of tax-free income each year. Taking large cash sums could move you into a higher tax band and give you a large tax bill – especially if you have other income on top.

The flexible lump sum you receive from us is likely to be quite a lot lower than the amount you take out of your pension savings. This is because:

• only 25% of each flexible lump sum is tax free – you pay tax on the rest.
• if HM Revenue & Customs (HMRC) hasn’t supplied us with your tax code for the current tax year, your flexible lump sum will be taxed using a temporary (emergency) rate. In most cases this will mean that too much tax will be deducted and you’ll have to reclaim the overpayment from HMRC.

– Say you take £30,000 as a flexible lump sum but you’re on an emergency rate of tax

– £22,500 is taxable, meaning you pay £8,399.61 in tax.

– So you’d get £21,600.39.

The example uses UK rates and allowances for the current tax year.

Pension Wise can give you guidance on your options.