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Should you cash in your whole pension pot?

Should you cash in your whole pension pot

Cashing in your entire pension pot in one go is not usually recommended. The first problem is that if you cash it in and spend it you’ll have no income from it further down the line. It can very quickly run out. The other problem is that although the first 25% will be tax free you’ll have to pay tax on the other 75%.  If added to a salary this is likely to take you over the higher income tax threshold meaning you’ll get a lot less from your pot than you would otherwise.

However, there are occasions when cashing in the whole pot could be a good option. If you have more than one pension you may decide just to cash in the lowest pot and use the money to pay off a mortgage or buy a high-ticket item. 75% of the sum is taxable but as long as this amount combined with your annual salary doesn’t exceed upper income tax thresholds then you’ll only pay the lower rate income tax.

Where pension pots are very low value, your options will be limited so cashing it in can make sense. You may decide to reinvest the money elsewhere rather than spend it all in one go.



Perhaps you aren’t ready to retire but cashing in a pension pot would allow you to leave employment and set up your own business. You can continue to grow other pensions, savings and investments and use your cash lump sum to finance your new venture. Cashing in your pension pot could replace your annual salary until your new business starts making a profit. There may be tax implications on future pensions so you should get professional advice.

If you only have one pension pot then cashing it in as one hit is a serious risk. Once it runs down you’d have to rely on a state pension and if you have to pay for care later on in life you may leave yourself short. If you died the money would be added to your estate and could be subject to inheritance tax which wouldn’t be the case with other available options.

There are many choices when it comes to pensions and it can be confusing deciding what to do. If you are considering taking your pension pot as one lump sum then we highly recommend getting proper financial advice. You need to understand the tax implications and how it could affect other pension incomes in the future.

Choosing the best option is a personal decision that should be made carefully after considering all the information. An independent financial adviser can help you understand what each option means for you and your future.

At Rockwood Financial Solutions we listen to our clients’ needs and help them make the best decision based on their individual circumstances. We can help you too. If you’d like to find out more about pension options or any aspect of financial planning then we’d love to hear from you. Contact us now for more information.

Nothing in this blog constitutes financial advice or recommendations, for more information please contact Rockwood Financial Solutions on 0330 332 2679.