Tom Selby explains the rules and the issues to consider
Thursday 09 Sep 2021 Author: Tom Selby

Can I cash out all my pensions in one go from age 55? I’m thinking of doing this as I don’t really trust pensions and would rather have control of my own money.

Tom Selby
AJ Bell Head of Retirement Policy says:

This depends on the type of pension you have. The state pension pays an income when you reach state pension age, without any mechanism to ‘cash out’.

Defined contribution pensions – where your retirement pot is invested in assets like stocks and bonds – can be accessed from age 55, with a quarter available tax-free and the rest taxed in the same way as income.

Once you have reached age 55, you have total flexibility over how you spend your money. The age at which you can access defined contribution pensions is due to rise to 57 in 2028.

It is also possible for those with defined benefit pensions – where you are paid a retirement income guaranteed by your employer based on the number of years you have been a member of the scheme – to transfer to a defined contribution scheme and then access the money flexibly from age 55.

These pensions are extremely valuable and so you shouldn’t take the decision to transfer lightly. If you are transferring a defined benefit pension worth more than £30,000 then you’ll need to speak to a regulated financial adviser first.

Annuities – where a guaranteed income is paid to you by an insurance company – cannot usually be cashed out.


Just because you can do something doesn’t mean you should and cashing out your entire retirement pots comes with various health warnings.

Because 75% of your withdrawal is taxed in the same way as income, you might push yourself into a higher tax bracket and pay more to the taxman than is necessary.

If you take taxable income from your defined contribution pension, you’ll also trigger the money purchase annual allowance, meaning the maximum you can save annually in a pension will be reduced from £40,000 to just £4,000.

You’ll also be moving your money from an environment where things like capital gains tax and inheritance tax don’t usually apply, to one where they do. Remember that defined contribution pensions are now extremely tax efficient on death too and can be inherited tax-free if you die before age 75. Money held outside of pensions, on the other hand, is usually subject to inheritance tax.

In addition, you need to consider how cashing out large portions of your retirement pot early will affect your long-term plans. Someone aged 55 might have another 40 years or more to live, so cashing out at this point will leave them at serious risk of having too little money in later life.


Send an email to with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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