Can I take 25% of my pension tax-free?

Full answer

The 25% tax-free entitlement is the pension commencement lump sum (PCLS). When you start drawing a defined contribution pension you can normally take a quarter of the crystallised amount free of Income Tax, with the rest taxed as income at your marginal rate as you draw it. Worked example: with a GBP 200,000 pot, taking the full PCLS gives GBP 50,000 tax-free; the remaining GBP 150,000 stays invested in drawdown or buys an annuity and is taxed when paid out. You do not have to take the whole 25% at once - many people crystallise in stages, taking 25% of each tranche tax-free, which can help manage the taxable element across years and keep more income in the basic-rate band (20% on gross GBP 12,571 to GBP 50,270 in 2026/27). Who it affects: holders of personal and most workplace defined contribution schemes, and members of defined benefit schemes (where lump-sum rules differ and a commutation factor applies). The minimum access age is currently 55 and rises to 57 from 6 April 2028. Key 2026/27 detail: the tax-free portion is capped by the Lump Sum Allowance. The PCLS is the lower of 25% of the amount crystallised and your remaining allowance, so very large pots will not get the full 25% tax-free. Watch the interaction with the Money Purchase Annual Allowance: once you take taxable income flexibly, future contributions that still attract tax relief are limited to GBP 10,000 a year (versus the standard GBP 60,000 Annual Allowance). Taking only the tax-free cash and no taxable income does not normally trigger the MPAA. Use a pension calculator to model staged withdrawals and the tax on the 75% before you decide.

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