This page works both columns of the most asked pension question since the April 2027 inheritance change was enacted: take the tax-free cash now, or leave it sheltered. It exists because the question has two good answers for two different situations, and the popular coverage mostly sells one of them.
From normal minimum pension age, 55 now and 57 from 2028, up to 25% of a pension can be drawn free of income tax, capped by the lump sum allowance of £268,275. What is taken is taken: there is no route back into the shelter beyond the ordinary annual allowances, and taking taxable income beyond it can trigger the £10,000 MPAA on future contributions.
Meet Dev, 60, with an £800,000 SIPP. His 25% is £200,000, comfortably inside the allowance. Until April 2027 his pension also sits outside his estate for inheritance tax; from 6 April 2027, enacted law brings unused pensions into estates, which is what moved this question from adviser forums to kitchen tables. Both columns below are Dev's, and both are real.
Enacted Pensions join estates for IHT from 6 April 2027 (Royal Assent 18 March 2026). Enacted LSA £268,275, MPAA £10,000, NMPA 57 from 2028. Last verified 8 August 2026.
Three reasons hold up to arithmetic, and each is conditional on a fact about Dev's life rather than a mood about markets.
| Reason | The arithmetic behind it |
|---|---|
| A real, dated use for the money | Clearing a 6% mortgage with tax-free cash is a certain saving at a known rate, worked properly on the pension-or-mortgage page. A planned house purchase or a child's deposit with a date behaves the same way: the money's job exists now. |
| Estate exposure after April 2027 | From 6 April 2027 Dev's unused pension counts in his estate. Cash taken and then given away starts the seven-year gift clock immediately; cash left inside cannot be gifted. For estates over the thresholds, the combined IHT-then-income-tax cost on inherited pensions can reach an effective rate above 67%, worked on the withdrawal-order page. |
| Certainty about the allowance | £268,275 crystallised today is a known number under enacted law. Allowances have been cut before, and a crystallised sum cannot be retrospectively shrunk by a future Budget. This is a certainty argument, not a prediction that cuts are coming. |
Information and guidance only. Not personal advice. Every row above is conditional: it holds when the stated fact about the household is true, and not otherwise. Verify decisions with a qualified FCA-authorised adviser before acting.
The counter-column is what happens when Dev takes his £200,000 with no plan beyond "before the taxman thinks of something": the money leaves a tax-free wrapper to sit in a taxed one.
Inside the pension, money compounds with no tax on growth. Outside, every £100,000 parked in savings at an illustrative 4.5% throws off £4,500 of interest a year against a personal savings allowance of £500 at higher rate, so most of it is taxed at 40%. Invested outside an ISA instead, dividends above £500 and gains above the £3,000 exempt amount are taxed, and the £20,000-a-year ISA allowance takes five years to re-shelter each £100,000. Meanwhile the shelter it left keeps working: at the engine's 2.5% real assumption, £100,000 left inside grows to £128,008 in today's money over ten years, about £28,000 of growth per £100,000 that the taxed alternative has to try to match with the tax working against it.
Two quieter costs complete the column. Cash withdrawn sits in the estate on day one, so for anyone NOT planning to spend or gift it, taking it early worsens the exact April 2027 problem it was meant to dodge until the gifts actually happen. And the decision is one-way: regret in year three has no undo button, which is not true of waiting, since the option to take remains open every year.
Put the columns side by side and the pattern is plain: every argument for taking the cash is really an argument about a use, and every argument against is about the absence of one.
| Dev's situation | The column that wins |
|---|---|
| Expensive mortgage, dated purchase, or planned gifts with the seven-year clock in mind | Taking, sized to the use, not automatically the full 25% |
| No current use; the cash would sit in savings "to be safe" | Waiting. The shelter is doing the £28,000-per-£100,000 job above, and the option stays open |
| Estate over the IHT thresholds, heirs in view, April 2027 approaching | Neither column alone: this is a spend-or-gift sequencing question across the whole estate, the one Meera's page and the April 2027 deep-dive walk through, and the clearest case on this page for paid advice |
Methodology. Foregone shelter: £100,000 × 1.02510 = £128,008, so about £28,008 of real growth per £100,000 over ten years. Taxed alternative drag: £100,000 × 4.5% = £4,500 interest against a £500 allowance; re-sheltering pace £100,000 ÷ £20,000 = 5 years. All arithmetic machine-checked before publication. Published 8 August 2026 · figures last verified 8 August 2026.
Sonuswealth is pre-launch. The app runs this decision on a real pension, a real estate and real dates, with the April 2027 rules already inside.