Answers · UK 2025/26

Can I cash in a small pension pot without affecting my annual allowance?

Yes. Under the small-pots rule you can take a whole pension worth £10,000 or less as a lump sum, with 25% tax-free and the rest taxed as income. It does not trigger the £10,000 Money Purchase Annual Allowance, and you can do this for up to three personal pensions.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

Full answer

The small-pots rule lets you fully cash in a pension worth £10,000 or less as a one-off lump sum once you reach normal minimum pension age (currently 55, rising to 57 from 6 April 2028). Crucially, unlike normal flexible access, taking a small pot does NOT trigger the Money Purchase Annual Allowance, so you keep your full £60,000 annual allowance and can carry on saving with tax relief. You can do this with up to three personal pension small pots, and there is no limit on the number of small occupational pension pots. Worked example: you have an old workplace pot worth £8,000 and you are 60, still working on £40,000. You cash it in under the small-pots rule. £2,000 (25%) is tax-free; the remaining £6,000 is taxable income. Added to your £40,000 salary, that £6,000 is taxed at 20% = £1,200, so you receive about £6,800 in total. Because it is a small pot, you can still pay up to £60,000 a year into your main pension. Watch out for emergency tax on the taxable portion, which you may need to reclaim from HMRC. Use the income tax calculator to estimate the tax on a small-pot withdrawal. For the detailed rules see gov.uk at https://www.gov.uk/tax-on-your-private-pension.