Some people who take their full pension savings as a cash lump sum may find they receive less than they thought they might.

Before you make any decisions, we strongly recommend you get together all the information you need and take advantage of the help and support available to you. The Government has set up Pension Wise to provide free and impartial guidance for those aged 50 or over who are considering their retirement options. You may also want to speak to a financial adviser.

Why might I get back less than I thought?

Generally, the first 25% of any withdrawal from your pension pot is tax-free, and anything over this is taxable. The way you’re taxed and how much you have to pay will depend on your individual circumstances and how you withdraw your money.

Taking a large amount of cash out of a pension at once can have significant tax implications. Take a look at our example below.

Careful planning could save thousands in tax

If John doesn’t need all the cash now, he has other choices that could be more tax efficient. For example, he could take partial cash withdrawals and spread the tax liability over a number of years.

The table below shows what would happen if he took £10,000 a year for 4 years, ignoring the effect of charges and investment gains or losses. 25% of each payment would be tax free and the rest would be taxed at 20%, which means he’d get £8,500 a year.

Over the course of 4 years John would receive £34,000, which is £2,000 more than the example above where he withdraws it all at once. By spreading the withdrawal over a number of years, he avoids falling into the higher rate tax bracket.

Tax year  2017/18  2018/19 2019/20   2020/21  Total
Take all cash now  £32,000  £0  £0  £0  £32,000
Take yearly withdrawals  £8,500  £8,500  £8,500  £8,500  £34,000


The above examples are based on 2017-18 tax rates and allowances. Your Personal Allowance goes down by £1 for every £2 that your income is above £100,000. The income tax rates and bands for Scottish residents may be different.

Find out more about your retirement options

Have you paid the right amount of tax?

The other reason you might get back less than you were expecting is because the tax code used to calculate your tax isn’t accurate. If your pension provider hasn’t received confirmation of your tax code from HMRC, or you haven’t been able to provide a current P45, then your pension provider will have to use an emergency tax code. This may mean that you’ll pay more tax than is due. An emergency tax code assumes that you’ll carry on receiving the same amount each month, even if the money you’re taking is a one-off withdrawal. 

If you want to check the amount of tax you've paid is correct, you can use the service on the Government's website at

If you think you've paid too much tax, you can wait for your pension provider or HMRC to resolve the overpayment, or you can reclaim it if you don’t want to wait. Please go to to find out how to claim a refund.

Important information

The most tax-efficient way to withdraw your pension pot will depend on your individual circumstances. The above examples are based on current law and tax rates and are subject to change.

These are important and potentially life changing decisions. Once your pension pot is exhausted, it's gone for good. It's vital that you ensure you've enough money for your future needs and your money lasts.

We strongly recommend you shop around. Also, take advantage of the free and impartial guidance from Pension Wise and get financial advice if you need to before you choose any option.

Your next steps

Or move on to the next section

Retirement Options which looks at the different ways you can access your pension pot.