Pension planning for business owners

When to cash in your personal pension


Most personal pensions set an age when you can start taking money from them but it’s not normally before the age of 55.

You should contact your pension provider if you’re not sure when you can take your pension.

Lump-sums, annuities and drawdown pensions

You can currently take up to 25 per cent of the fund as a tax-free lump sum - if it is less than 25 per cent of the 'lifetime allowance' for that tax year. This must also be within your pension scheme rules and your total savings must be within the 'lifetime allowance' for the year in which it is taken.

The options you have for taking the rest of your pension pot include:

  • taking all or some of it as cash
  • buying a product that gives you a guaranteed income (sometimes known as an ‘annuity’) for life
  • investing it to get a regular, adjustable income (sometimes known as ‘flexi-access drawdown’)

Ask your pension provider which options they offer (they may not offer all of them). If you don’t want to take any of their options, you can transfer your pension pot to a different provider.

When you die, the annuity stops unless it is guaranteed to be paid for up to ten years. If you die before taking benefits, a life insurance element provides for your dependants. However, when you buy your annuity you can make provision for all or part of it to pay a pension to your spouse or partner, should you die before them.

Taxation of pension payments

All payments that you receive from your pension fund (apart from the tax-free lump sum) are subject to income tax if these payments, plus any other sources of income, take you over the annual income tax threshold. In addition, your pension fund has a 'lifetime allowance' limit, which is set by the government. 

The lifetime allowance is currently £1,073,100. Read HMRC's guidance on pension schemes and tax relief.

The value of savings above this limit will be subject to a charge, as follows:

  • if you take benefits as a pension, the charge on the pension above the lifetime allowance will be 25 per cent, in addition to income tax
  • if you take benefits as a lump sum, you will pay 55 per cent on the excess over the lifetime allowance, in addition to income tax

The charge will be made either when you start to take your benefits, or when you are 75 if you delay taking an income.

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