How much of my pension can I take as a tax-free lump sum?

Full answer

Most people can take up to 25% of their defined contribution pension as a tax-free lump sum, known as the pension commencement lump sum, once they reach the normal minimum pension age of 55 (increasing to 57 from 6 April 2028). The remaining 75% stays in your pension and is taxed as income when you draw it, whether through drawdown or an annuity. There is an overall lifetime cap on the total tax-free lump sums you can take. Worked example: you have a GBP 200,000 pot and take the full 25% tax-free lump sum of GBP 50,000. The other GBP 150,000 remains available for income. If you later draw GBP 10,000 of taxable income in a year when you have no other income, it sits within your GBP 12,570 Personal Allowance and no tax is due. But if you also receive the full State Pension of GBP 12,548 a year, your allowance is already almost used up, so most of that GBP 10,000 would be taxed at 20%, and income pushing you above GBP 50,270 would be taxed at 40%. You do not have to take the whole 25% at once. With phased withdrawals you can take 25% tax free from each chunk you move into drawdown, which can help manage your tax position year by year. Taking a very large taxable amount in a single year can unnecessarily push you into a higher tax band. Use the pension calculator to plan how much to take and the income-tax calculator to check the tax on the taxable portion. The minimum age, the lump sum cap and the precise rules can change, so confirm the current position at gov.uk before you act.

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