Understanding encashment 

What it is encashment?

 Encashment basically means taking all of your Personal Retirement Account (PRA) as a cash lump sum.

How much can you get with encashment?

 How much you get will depend entirely on what’s in your PRA at the time.

What are the types of encashment available?

 With the RPS there is really only one. You simply take your entire PRA as a lump sum, all in one go. We call this total encashment.

25% is tax free and the rest may be taxed. The exact amount you’ll pay in tax will depend on the amount you are taking (this is subject to income tax) and the amount of any other taxable income you have already received in the tax year. 

If you’d prefer to only take part of your PRA as cash, you can do so by mixing and matching your retirement options. This would mean opting for an annuity or drawdown with a new provider, before taking part of your pot as cash.  

What are the main benefits of total encashment?

• You can get instant access to all of the savings in your PRA
  

What are the risks with total encashment?

• This could be the only income you have for the rest of your life. And the money could run out before you die. It’s important then to consider life expectancy and how long your money might need to last
• You can only take 25% of your PRA as a lump sum, tax free. Any amount above this may be taxed. 
  
• You may pay a higher rate of tax if you take out large amounts
• Withdrawing large amounts of cash may also affect your eligibility for some Government benefits
  
• If you are taking a cash lump sum, you should be aware of scams. Fraudsters are known to target people in this situation by offering investment opportunities. You could lose your entire savings and face a large tax bill on top. Please click here for more details
•  If you take all of your PRA funds as a single lump sum, you will not have any remaining funds to provide a regular income for your spouse or any other dependants after you die.
  

 

Is total encashment right for you?

 You may wish to speak to an Independent Financial Advisor before making any final decisions.

Liverpool Victoria (LV) has been chosen as the official partner to give RPS members access to financial advice. LV can be contacted on 0800 023 4187.  

You are still free to choose your own Independent Financial Adviser (IFA). You can find an IFA in your area at unbiased.co.uk.

A range of planning tools are also available in your myRPS account to help you consider your options. For DC members this includes:

• a retirement modeller - showing what your pension pot might be worth when you retire and the different ways you can choose to use that money.
• a retirement budgeting calculator – showing how much money you might need for your retirement,
  

Login or register for your myRPS account here to find out more.

How do you get total encashment?

You can typically choose to take your benefits as cash from age 55. However, some members may have a Protected Pension age, which allows them to take all of their benefits as cash from age 50. This does not apply for either drawdown or an annuity, which cannot be taken before age 55.

If you choose total encashment you will need to let the Scheme administrator, Railpen, know that this is your preferred option. You can read more about the process here

If you’d prefer to only take part of your PRA as cash, you would need to transfer to a new provider. 

Are there any alternatives to encashment?

Yes – if total encashment isn’t right for you, then you can consider:

• getting a flexible income you can take a bit at a time, known as drawdown 
• getting a guaranteed income, known as an annuity
  

You can find out more by clicking here