Should you take a 25% tax-free pension lump sum in instalments?

Taking out a 25% tax-free lump sum from your pension sounds appealing but it might not be the best way to manage your retirement savings.

Man uses calculator and looks at financial documents as he sits in front of laptop on sofa.
Being able to take 25% of your pension savings as a tax-free lump sum is an appealing feature of private pensions.
(Image credit: Xavier Lorenzo via Getty Images)

For many savers, being able to take 25% of their pension savings as a tax-free lump sum when they reach retirement is one of the main attractions of private pensions.

While there are many potential uses for this money – from paying off a mortgage, helping grown up children or spending it on travel – you don’t have to take it all at once. In fact it may make sense to opt for instalments instead.

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Contributor

Holly Thomas is a freelance financial journalist covering personal finance and investments. 

She has written for a number of papers,  including The Times, The Sunday Times and the Daily Mail. 

Previously she worked as deputy personal finance editor at The Sunday Times, Money Editor at the Daily/Sunday Express and also at Financial Times Business.

She has won Investment Freelance Journalist of the Year at the Aegon Asset Management Media Awards in November 2021. 

With contributions from