Taking a lump sum

What is a lump sum?

This is the amount of money you decide to take from your pension pot. If you want money in hand once you're over 55, taking one or more lump sums could be an option.

It can be taken whenever you need it, either all in one go or as a number of smaller lump sums. You will have to check on the ins and outs of your plan before proceeding, and it's worth bearing in mind that, like an annuity, once you choose this option, you cannot change your mind.

How does it work?

The first 25% of each lump sum is usually tax-free and the rest is taxable. Whatever remains in your plan will stay invested in your chosen funds and the value of these can go down as well as up.

You'll need to carefully consider how you use your money once it's withdrawn as it will need to last for the whole of your retirement and you could be retired for a long time. Remember, once it's gone, it's gone.

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What else do I need to think about?

With this option, you'll need to think closely about the tax implications.

A higher tax bracket

Despite 25% of each lump sum withdrawal usually being tax-free, as the rest of the lump sum is taxable, taking a lump sum out of your pension pot could push you into a higher tax bracket.

Saving restrictions

If you take a lump sum then this may mean that you will be subject to the money purchase annual allowance (MPAA). If the MPAA applies and total contributions to all your money purchase pension plans in each tax year are more than the MPAA you will have to pay a tax charge. The MPAA is currently £4,000.

State benefit entitlement

Taking lump sums could also affect any state benefits you qualify for. Please refer to the government's Pension Wise website for more information.

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Partial payments

Some Zurich plans have a minimum claim value of £1,000 and the remaining value must be at least £5,000. Not all Zurich plans allow partial payments to be taken so contact us if you are unsure.

Unfortunately, we cannot offer partial payments to customers over 74 years of age if your plan needs you to have claimed in full by age 75.

Leave something behind

If there is anything left in your retirement savings when you die you can leave a lump sum or income to someone else.

If you're under 75 when you die, lump sums will usually be paid tax-free.

If you've reached 75 when you die, then any lump sums will be taxable.

Made up your mind?

If you think taking a lump sum is the right option for you, please don't hesitate to get in touch. Our team will be happy to help.

Need advice?

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Access a free, impartial government service to help you make sense of your options with Pension Wise

Pension Wise
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If you don't currently have a financial adviser, you can find one near you at unbiased.co.uk

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Or you can read reviews of financial advisers at vouchedfor.co.uk


[Zurich is not responsible for the content of external websites]