How long does it take to get a tax free lump sum from my pension when turning 55?

09 August 2021

Question by Peter

How long does it take to get a tax free lump sum from my pension when turning 55?

Answered by James Greenly

Hi Peter

It really all depends on what type of pension you currently have, and who your pension provider is.

I'm assuming that you have what is called a 'defined contribution' or 'money purchase' pension. This is one that you have been saving into over the years and you have seen the value (hopefully) grow. The alternative to this type of pension is a 'defined benefit' pension, which does not have a value in the same way a defined contribution pension does. Defined benefit pensions are set up by your employer, and they are essentially a promise to pay you an income when you get to retirement age, and the amount they pay you depends on things such as how long you worked at the company, and what your salary was.

Back to your question. Typically once you have told your pension provider that you wish to take some tax free cash (normally the maximum is 25% of your pension), then in my experience it can take anywhere from 2-4 weeks for them to deal with your request and for the funds to reach your bank account.

There are lots of considerations when taking your tax free cash. Say you take 25% as a lump sum, what will you do with the remaining 75%? You can either leave this in the pension fund and draw down from it either on ad hoc basis, or by setting up a regular income. Alternatively you could use the remaining 75% to purchase an annuity income, which would pay you a guaranteed amount for the rest of your life. There are benefits and drawbacks to each route, so I would recommend you seek independent financial advice (or do your homework on the options) before taking your tax free cash.

I hope this answers your question, please feel free to reach out if you have any more questions.

Answered by

James Greenly

Chartered Financial Planner

I am a Chartered Financial Planner at Capital Asset Management, a boutique financial planning and wealth management firm based in the City of London.