Answers · UK 2025/26

What is the small pots rule for taking pension money as a lump sum?

The small pots rule lets you take an entire individual pension pot worth £10,000 or less as a lump sum (25% tax-free, the rest taxed as income), regardless of your Lump Sum Allowance position, without it triggering the Money Purchase Annual Allowance. You can take up to three non-occupational small pots this way in your lifetime, but occupational scheme small pots have no such limit on the number of pots.

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The small pots rule is a useful, often overlooked option for people with several small, separate pension pots -- commonly from short periods of employment or old workplace pensions -- who want a simpler way to access modest amounts without the complexity of full pension flexibility rules. **The £10,000 threshold** You can take an individual pension pot valued at £10,000 or less entirely as a lump sum, with 25% of it tax-free and the remaining 75% taxed as income in the normal way (added to your other income for that tax year and taxed at your marginal rate) -- this is sometimes called a "small pot lump sum" or "trivial commutation" style payment, though technically distinct from full trivial commutation rules that apply to defined benefit pensions. **Limit of three pots for personal/non-occupational pensions** For personal pensions (such as SIPPs or personal/stakeholder pensions not linked to a specific employer scheme), you can use the small pots rule for a maximum of THREE separate pots in your lifetime -- if you have more than three qualifying small personal pension pots, you'd need to use a different method (such as full flexi-access drawdown or an uncrystallised funds pension lump sum) for any pots beyond the third. **No such limit for occupational pension pots** Crucially, if your small pots come from OCCUPATIONAL pension schemes (broadly, workplace pension schemes linked to a specific employer, including many auto-enrolment schemes), there is no limit on the NUMBER of small pots you can take this way -- each qualifying occupational scheme pot of £10,000 or less can be taken as a small pot lump sum, regardless of how many you have, which is helpful for people who've worked for several employers and built up multiple small workplace pension pots. **Why avoiding the Money Purchase Annual Allowance matters** Normally, accessing pension savings flexibly (for example, via flexi-access drawdown or an uncrystallised funds pension lump sum) triggers the Money Purchase Annual Allowance, dramatically reducing your future annual allowance for pension contributions to just £10,000 a year. Using the small pots rule specifically AVOIDS triggering the MPAA, meaning you can take these small lump sums while still retaining your full standard annual allowance (currently £60,000, or your tapered amount if applicable) for any future pension contributions -- an important advantage for anyone still working and contributing to a pension who also wants to tidy up old small pots. **Each pot assessed individually, not combined** The £10,000 threshold applies to each INDIVIDUAL pot separately, not your total pension savings combined -- so someone with, say, four separate £8,000 pots (totalling £32,000) could potentially use the small pots rule on each pot individually (subject to the three-pot limit for non-occupational pensions), even though their combined pension wealth well exceeds £10,000. **Interaction with the Lump Sum Allowance** The tax-free 25% portion of a small pot lump sum still counts towards your overall Lump Sum Allowance (currently £268,275), though for most people using this rule for genuinely small pots, this is unlikely to be a practical constraint. **Practical tip** If you have several old workplace pensions you've lost track of, check each pot's value and source (occupational versus personal) before deciding how to access them, since correctly using the small pots rule where available for at least your first few pots can help you tidy up old pensions without accidentally triggering the Money Purchase Annual Allowance and restricting your future contribution capacity.