Answers · UK 2025/26

How is a £125,000 pension pot taxed if I take income drawdown?

From a £125,000 pension pot, you can normally take £31,250 (25%) as a tax-free lump sum, leaving £93,750 to draw down as taxable income. Withdrawals from the taxable portion are added to your other income for the tax year and taxed at your marginal rate.

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

Full answer

A £125,000 defined contribution pension pot accessed through flexi-access drawdown from normal minimum pension age (currently 55, rising to 57 from April 2028) allows a Pension Commencement Lump Sum of up to 25% tax-free -- £31,250 -- leaving £93,750 in the taxable portion. Every withdrawal from that £93,750 is added to any other income you have in the tax year it is taken and taxed at your marginal Income Tax rate, exactly like salary or the State Pension. Spreading withdrawals across eight to ten years of retirement, taking amounts that fit within the Personal Allowance and basic-rate band each year alongside any State Pension, can keep the effective tax rate low, often in the 0% to 20% range overall, whereas withdrawing most of it within two or three tax years would push a large share into the 40% higher-rate band. Pension providers usually apply an emergency tax code to the first withdrawal in a tax year, correctable by contacting HMRC or through automatic year-end reconciliation. Accessing the taxable portion also triggers the £10,000 Money Purchase Annual Allowance if you plan to keep contributing to a pension while working.