You are usually permitted to take up to 25% of your pension fund at the start of your retirement as a tax free lump sum. This is known as the Pension Commencement Lump Sum (PCLS).
Many people find this a useful option, and a great way to start their retirement. However, it is important to note that you don’t have to take the 25%, you can take less or none - it purely depends on your personal circumstances. The more you take as your PCLS, the less of your pension fund there will be to generate an income for you.
Key points to consider
- The size of your overall pension pot, and whether reducing it by 25% or any lesser amount limits the options available for you to take out a particular annuity
- The fact that taking a lump sum will of course reduce the amount of annuity income you receive from the remaining funds
- Any outstanding debts or mortgage you might consider clearing with this money, and any other options you might have to clear them
- What level of savings you currently have available as cash and what kind of interest rate you could secure by placing the money in a bank or building society account
- Whether you are likely to need to make any large purchases in the near future – for instance a new car, or repairs to your home which will need a large amount of capital.
Useful links Guarantee period
Value protection
How frequently do you want your income to be paid?