When you retire, you can choose to take a cash lump sum from your pension fund. This is known as the Pension Commencement Lump Sum. This can be paid directly into your bank account, to spend as you wish. This cash lump sum is tax-free.
You can take a maximum 25% of your pension fund as tax-free cash under current tax legislation. You don’t have to take this much, you can take any amount up to 25%. It’s important to remember that whatever you take out of your pension fund as tax-free cash will reduce the amount left to buy your annuity income.
Many people want the maximum tax-free cash, many people want the maximum annuity income, many people want a combination of the two. It all depends on your personal circumstances and needs.