Answers · UK 2025/26
What are the rules for taking a small pension pot as a lump sum (the £10,000 rule)?
Small pot rules let you take an entire pension of £10,000 or less as a single lump sum, with 25% tax-free and the rest taxed as income, without triggering the Money Purchase Annual Allowance restriction that normally applies when flexibly accessing a larger pension. You can use this rule for up to three non-occupational small pots (or more occupational pots) in your lifetime.
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The small pot rule is a specific HMRC provision allowing someone aged 55 or over (rising to 57 from 2028) to take an entire individual pension pot valued at £10,000 or less as a single lump sum, regardless of their total pension wealth elsewhere, with 25% paid tax-free and the remaining 75% taxed as income at your marginal rate in the tax year of withdrawal. What makes this rule particularly useful is that it does not trigger the Money Purchase Annual Allowance (MPAA), a restriction that normally cuts your annual allowance for further pension contributions down to £10,000 once you flexibly access taxable income from a larger pension pot via drawdown or an Uncrystallised Funds Pension Lump Sum (UFPLS) — taking money under the small pot rule specifically avoids this MPAA trigger, which matters if you are still working and contributing to a pension elsewhere. You can use the small pot rule for up to three personal (non-occupational) pension pots in your lifetime, each valued at £10,000 or less at the time of encashment, plus an unlimited number of occupational pension pots meeting the same £10,000 threshold and other conditions, making it a genuinely useful tool for consolidating the loose change of old workplace pensions built up from short periods of employment. Each pot must be valued at £10,000 or less individually when tested — you cannot combine several pots each worth £12,000 and claim small pot treatment on them collectively. Because the £10,000 threshold has been fixed for a number of years without index-linking, more pension pots gradually qualify or fail to qualify as typical pot sizes and inflation change over time, so always check the current value against the threshold at the point of withdrawal rather than assuming an old valuation still applies. Use the Pension calculator to check your total pension position before deciding whether small pot treatment suits your circumstances.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.