These are lump sums you can take to cash in your whole pension pot – or just some of it, leaving the rest invested.
HMRC calls them ‘uncrystallised funds pension lump sums’ (or UFPLS). This term is meant to highlight that the lump sum still needs to be taxed… but we’ll stick with ‘flexible lump sum’.
How do they work?
- You can normally take up to 25% of a flexible lump sum tax-free (limited to a lifetime maximum of £268,275 unless you hold protection for a higher amount). The rest of the lump sum is taxable at the highest rate you pay.
- With The People’s Pension your pot needs to be worth over £10,000 to take this option. If your pension pot is £10,000 or less, check out Small pot lump sums.
- With The People’s Pension you’re allowed 1 lump sum a tax month and it has to be at least £2,000. Then each time you take another one, you need to still have over £2,000 in your pot on the date we process your claim.
Here’s an example of a tax calculation:
Say you take £30,000 as a flexible lump sum (and you haven’t yet reached the lifetime cap of £268,275 for tax-free payments).
- If HMRC has not 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.
- £22,500 is taxable, meaning you’d pay £8,399.61 in tax.
- So, you’d get £21,600.39.
There’s also a range of rules and tax concerns you need to think about, so make sure you do your research.
More about your different options for taking your pension savings »
We’re not authorised to give you advice, but you can read more about your guidance and advice options on our website.