Understanding encashment

As a member of the IWDC Section, there are a number of ways you can take your pension pot (known as your Personal Retirement Account). One option is 'encashment', but what is encashment and how does it work?

Three piles of £50 notes

How much can you get with total encashment?

How much you get will depend entirely on the value of your pot at the time you want to take it.

What are the types of encashment available?

In the Railways Pension Scheme (RPS), there is only one option – you simply take your entire pot as a lump sum, all in one go. This is known as total encashment.

25% (but no more than £268,275 unless you have a higher protected amount) of your pension pot can be paid to you tax free. The rest of your pot would be taxed at normal income tax rates. The exact amount you’ll pay in tax will depend on the amount you are taking 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 pot as a cash lump sum, you can do so by taking a combination of different options. This could mean choosing to buy an annuity and/or taking your pot bit by bit (drawdown) with a new provider, before then taking part of your pot as a cash lump sum.  

What are the main benefits of total encashment?

You can get instant access to all of the savings in your pension pot (Personal Retirement Account).

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 to consider life expectancy, how long your money might need to last and any other sources of income you may have. 
  • You can only take 25% (but no more than £268,275 unless you have a higher protected amount) of your pension pot 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 who are looking to release their pension savings by claiming they can help you access your pension pot before age 55. You could lose your entire savings and face a large tax bill on top. Learn how to protect yourself on the scams page. 
  •  If you take all of your pension pot as a single lump sum, you will not have any remaining money 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 Adviser (IFA) before making any final decisions.

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

You are still free to choose your own IFA. You can find an IFA in your area on the Unbiased website. 

A range of planning tools is 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 options you can choose from.
  • a Retirement Budgeting Calculator – which estimates how much money you might need for the lifestyle you want when you retire.

Log in or register for your myRPS account to try the tools now.

How do you get total encashment?

You can typically choose to take your pension pot as a cash lump sum from age 55. However, some members within the Railways Pension Scheme may have a Protected Pension Age. This allows them to take all of their pension pot as a cash lump sum from age 50. This does not apply to 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.

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

Are there alternatives to total encashment?

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

    You can read more about your options on the how I can take my IWDC pot page.  

    What to read next

    Understanding annuities

    Learn more about taking your IWDC pot to purchase an 'annuity', which will give you an income either for life or for a set amount of time.

    Understanding drawdown

    Learn about how you can take your IWDC pot bit by bit as a flexible income. This is known as drawdown.

     

    Your Retirement Modeller

    Log in to your myRPS account and find the Retirement Modeller under 'My Library' to see what your Personal Retirement Account could be worth when you take it, and your options for how you take it.