Glossary · UK

What is Small Pot Lump Sum?

A rule letting you withdraw a small pension pot in full as a lump sum, with 25% tax-free and the rest taxed as income.

Full Definition

A small pot lump sum lets you take an entire small pension worth up to GBP 10,000 as a single cash payment, separate from the normal flexible drawdown rules. Up to three personal pension small pots (and an unlimited number of occupational scheme small pots) can be taken this way once you reach the minimum pension age. As with most pension withdrawals, 25% of each small pot is paid tax-free and the remaining 75% is taxable as income at your marginal rate. The key advantage is that taking a small pot lump sum does not trigger the Money Purchase Annual Allowance, which would otherwise cut future tax-relieved contributions to GBP 10,000 (2026/27). This makes small pots useful for tidying up several tiny legacy pensions without restricting ongoing pension saving. Providers usually apply emergency tax on the taxable element, so you may need to reclaim overpaid tax from HMRC afterwards.