Pension freedom rules introduced in 2015 mean that if you have a defined contribution pension, otherwise known as a money purchase pension, you can usually take your whole pension as cash if you want to from the age of 55 onwards, regardless of how big your pension pot is.
However, there are some significant drawbacks to consider, not least that you could also land yourself with a big tax bill if you’re taking out a large lump sum, as only the first 25% of your pension is tax-free.
If you just take your 25% tax-free lump sum pension cash, you can still pay in up to £40,000 a year into your pension and benefit from tax relief, known as your Annual Allowance. As soon as you take out more than this, the maximum you’ll be able to pay into your pension each year will fall to £4,000, and becomes known as the Money Purchase Annual Allowance. You can find out more about how the MPAA works in our article What is the Money Purchase Annual Allowance?
However, if you have small pensions (this means up to three small pots of £10,000 each from non-occupational pension schemes and an unlimited number from separate occupational pension schemes) then subject to the scheme rules, you may be able to take these as cash lump sums without triggering the MPAA.
Not all company schemes will offer you the option to cash in your whole small pension, so you might have to move your savings to an alternative provider if you want to do this.