What should I do with spare cash?

A UK-specific guide — personalised hierarchy, allocation, and fund picks. Not regulated financial advice.

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How much are you working with?

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Inheritance Work bonus ISA deadline Redundancy payout House sale proceeds Pension lump sum

Income tax band

What rate of income tax do you pay?

£100k–£125k trap check

Is your income between £100k and £125k?

Yes — personal allowance tapering

Emergency fund

Do you have 3+ months of expenses in easy-access cash?

Yes, covered

Not yet

Monthly expenses

How much do you spend per month? (Used to size cash buffer)

~£1k

~£2k

~£3k

~£5k

~£8k

£10k+

Tax wrappers used this year

What have you already used?

Used ISA allowance

Max'd SIPP

Nothing yet

Mortgage

Do you have a mortgage? What rate?

No mortgage

Under 3%

3–5%

Over 5%

Timeline

When might you need this money?

Under 12 months

1–3 years

3–7 years

7+ years

The coin flip

Fair coin — heads doubles it, tails you lose it all. Do you flip?

Flip it

Pass

80% chance of +50%, 20% chance of −30% — take it?

Yes, take it

No thanks

Headache tolerance

How do you feel about monitoring investments?

Zero — set and forget

Happy to review annually

I enjoy this stuff

Strong prior beliefs

Any of these resonate?

Bullish on gold

Bullish on Bitcoin

Want less US exposure

Wealth context (optional)

What are your total investable assets? excl. home & pension

Helps us flag when this money is a trivial satellite vs a major commitment — and changes the risk framing accordingly.

Investing

£10,000

Total investable wealth

Skipping this is fine — the core recommendation is the same either way.

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Your plan

Investment hierarchy

Primary recommendation

General information only — not FCA-regulated financial advice. We are not FCA-authorised. Consult an FCA-authorised adviser for personal recommendations.

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Fund reference

Tap a fund to expand

OCFs may change. Verify on provider factsheets before investing.

Key considerations

The £268,275 lifetime cap is permanent — understand what you have available — The maximum tax-free lump sum you can take across all pensions in your lifetime is £268,275 (frozen since April 2023). This is 25% of what was the old £1,073,100 Lifetime Allowance. If you have multiple pension pots and take PCLS from each, the tax-free amounts accumulate against this lifetime limit. Any lump sum above £268,275 is taxed as income. If you have a large pension (£1 million+), plan which pots to crystallise first and in what order.
Taking the lump sum does not trigger the Money Purchase Annual Allowance — but drawing income does — Taking your PCLS alone (and moving the remaining 75% into drawdown without drawing income) does not trigger the Money Purchase Annual Allowance (MPAA). The MPAA — currently £10,000/year — limits further pension contributions once you've 'flexibly accessed' your pension. The moment you take a flexible income payment from drawdown, the MPAA kicks in. This matters enormously if you're doing 'semi-retirement' and still earning.
Investing the lump sum outside the pension: use the ISA allowance first — The lump sum exits the pension tax-free and is now unshielded from tax on future growth. The highest priority is getting as much as possible back into a tax-free wrapper. You can contribute up to £20,000 per tax year into a Stocks and Shares ISA — so a £100,000 lump sum would take 5 years to fully shelter via annual ISA contributions (2.5 years if a spouse also uses their allowance). In the meantime, the remainder sits in a GIA, subject to CGT and income tax.
Phased drawdown can be more efficient than a single large lump sum — Instead of crystallising your entire pension on day one, 'phased drawdown' means crystallising portions over several tax years. Each crystallisation event releases 25% of the crystallised amount as PCLS and 75% into drawdown. This spreads the 75% taxable drawdown income across multiple tax years, keeping you within lower tax bands. It also means less cash sitting unprotected while you drip-feed it into ISAs. Phased drawdown is standard practice for larger pots (£300,000+) and any good financial planner will model it against a single crystallisation.

Frequently asked questions

Do I have to take the 25% tax-free lump sum all at once?

No — you have several options. You can take the entire 25% as a lump sum at retirement. You can take it in stages through phased drawdown (crystallising portions over time, each releasing 25% tax-free). Or you can choose not to take any PCLS and keep the entire pot invested — accepting that all future withdrawals will be partly taxable. The right choice depends on your other income, your tax position, how soon you need the money, and whether your remaining pension pot is above the PCLS lifetime limit.

What's the best thing to do with a £100,000 pension lump sum?

First, set aside any near-term cash needs so you're not forced to sell investments at a bad time. Then, prioritise getting the money into an ISA wrapper at £20,000 per year. The rest can sit in a high-interest savings account or a General Investment Account (GIA) in the interim. In a GIA, manage disposals to stay within the annual CGT allowance (£3,000) and use the £500 dividend allowance. Avoid holding the lump sum in a current account earning no interest — that's a real opportunity cost over a 5-year ISA funding period.

I've taken my pension lump sum — can I put any of it back into a pension?

Yes, but with constraints. If you've only taken the PCLS and not drawn any flexible income, your annual pension allowance remains £60,000 and you can contribute further. However, your own contributions get income tax relief only up to 100% of your relevant earnings in the year — so if you're fully retired with no employment income, you can contribute a maximum of £3,600 gross per year to a SIPP (£2,880 net, boosted to £3,600 by basic rate relief). If you've drawn flexible drawdown income, the MPAA limits you to £10,000 per year.

Will my pension lump sum affect my State Pension or benefits?

The tax-free lump sum itself doesn't affect your State Pension entitlement — that's based on your National Insurance record, not your savings. However, if the lump sum generates income (interest, dividends), that income may affect means-tested benefits. If you're under State Pension age and claiming benefits, capital above £16,000 disqualifies you from most means-tested support. Pension Credit (for those over State Pension age) has a capital limit of £10,000 before it reduces your award. If benefits are relevant, take welfare benefits advice before crystallising.

How much did you receive?

£25,000 £50,000 £100,000

Other situations

Inheritance Work bonus ISA deadline Redundancy payout House sale proceeds

General educational information only. Not FCA-regulated financial advice. We are not authorised by the FCA. Consult an FCA-authorised adviser for personal recommendations.

What should I do with my 25% tax-free pension lump sum? — UK guide

What should I do with spare cash?

Your plan

Fund reference

Key considerations

Frequently asked questions