Once you reach the age of 55 (rising to 58 in 2028) you may be able to take money from your personal pension. You can usually take 25% tax-free (up to a maximum of £268,275). This can be taken as a lump sum, or over time in instalments.
Once you have started to take the money, you have three options for the remainder of your pension pot:
- Buy an annuity: You can buy an annuity, which gives you a guaranteed income for life
- Opt for flexi-access drawdown: You can keep your money invested and take out a regular or ad-hoc income from it
- Take it as cash: You can take the rest of your money as cash, which will be taxed as earnings
But what happens if you want to keep paying into your pension, once you have started withdrawing money from it? Can you pay into your pension after taking a tax-free lump sum?
You cannot pay money into your pension after buying an annuity
If you have bought an annuity, you cannot pay more into it, as it is a guaranteed income for life that you can’t change or cash in.
Future payments into a drawdown pension are capped
If you have opted for a defined contribution flexi-access drawdown account, it is possible to continue to pay into it and benefit from tax relief, but your annual allowance for future savings is capped at £10,000 in the current and future tax years. This is known as the money purchase annual allowance.
Future payments after taking your pension as cash can be capped
This allowance also applies if you decide to take your entire pension as a lump sum. The only exception to this rule is if you take a small pot lump sum payment.
What is a small pot lump sum?
If you have a personal pension worth £10,000 or less, and you are 55 and the payment covers all your rights in the scheme, you can take it as a lump sum without triggering the money purchase annual allowance. This means that your annual allowance for future savings is capped at £10,000.
You can use this rule three times for personal pensions.
Seek advice before taking money from your pension
There may be good reasons why you are looking to take money out of your pension now. But we would always recommend seeking expert financial advice that takes into account your particular circumstances before making a firm decision.
