Can I take a lump sum from my pension?

What is the pension tax-free lump sum?

When you save into a pension you benefit from tax relief on your contributions - effectively a government top-up to your savings.

When you take money from your pensions, you generally have to pay tax on this income. However, you can take up to 25% of your pension as a tax-free lump sum.

The most you can take as a tax-free lump sum is £268,275.

If you take out an annuity as a result of using the service from HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission.

Check your annuity options

Which? says you can trust HUB Financial Solutions to compare across the whole market

Find out more

Can I withdraw my tax-free lump sum before age 55?

In normal circumstances, you can't withdraw any of your pension before the age of 55 without paying a huge tax charge of up to 55%.

Ignore any companies offering early pension access with the promise that they can help you dodge these penalties. 

This is a popular tactic among scammers that can leave you with little or no money in your pot.

If you're in poor health, or you work in an occupation that traditionally has early retirement ages, such as the military, you may be able to access your money earlier than 55 without facing punitive tax charges.

Speak to your pension scheme to check if this applies to you. 

Taking a lump sum from a defined contribution pension

Most workplace pensions today are defined contribution (DC) schemes, where the amount you end up with depends on how much you and your employer have contributed, and how the underlying investments have performed. 

You can take up to 25% of the amount in your pension as a tax-free lump sum. You then have several options for accessing the rest of the money:

• keep it invested and make withdrawals as you need, using pension drawdown 
• buy an annuity
• cash in your entire pension, subject to tax

An alternative strategy is to use your tax-free entitlement gradually, by taking what are called 'uncrystallised funds pension lump sums', or UFPLS.

What is an uncrystallised pension lump sum or UFPLS?

You have the option to leave money in your pension and take out lump sums when you need to.

The technical term for this is 'uncrystallised funds pension lump sums' (UFPLS).

You can only opt for UFPLS if you've not already taken any tax-free cash or income from your pension.

If you take a lump sum, or several lump sums, from your pension in this way, the amount you can pay into a pension and still get tax relief on falls to £10,000 a year.

How much tax will I pay on a lump sum?

With UFPLS, usually 25% of each withdrawal is tax-free, with the rest charged at your normal income tax rate.

Use our pension lump sum tax calculator 2025-26

This calculator applies income tax in England, Wales and Northern Ireland. Income tax in Scotland is different - we will be updating the calculator soon.

Emergency tax on pension lump sums

Due to an unfortunate quirk in the tax system, the first lump sum you take from your pension often won't be taxed correctly, meaning that you'll pay more tax than you need to.

HMRC applies what's known as a 'Month 1' tax code to you first withdrawal, which assumes the amount you've withdrawn is 1/12th of your annual income.

So, if you withdraw £20,000 from your pension as an uncrystallised fund pension lump sum, the withdrawal is assumed to be part of a £240,000 annual income.

This means you could be hit with a tax bill running into thousands of pounds.

HMRC will eventually repay this tax to you, ordinarily at the end of the tax year.

But you can get your money back within 30 days by submitting one of three forms to HMRC:

• P55 is for those who take out a some but not all of their pension as a lump sum
• P50Z is for those who take out all of their pension and are no longer working
• P53Z is for those who take out all of their pension and are still working

Should I take a lump sum?

Not all pension companies will offer UFPLS, while some may limit you to one or two lump-sum withdrawals a year, or apply a charge if you take out all your money within a set period of time.

If you go ahead and take sums from your pension in this way, the main things to consider are the tax implications and the possibility of running out of money.

It'll be up to you to make sure your withdrawals are sustainable and that your savings last as long as they need to. 

Bear in mind you don't need to take your whole pension using UFPLS - you might take some this way and then arrange drawdown or an annuity with the remaining pot. 

Taking a lump sum from a final salary pension

With a defined benefit or final salary pension scheme you get a guaranteed income for the rest of your life, which is based on your final salary or your career average salary when you come to retire.

The size of your tax-free lump sum, and the impact taking it will have on the rest of your retirement income, will be determined by what's known as a 'commutation factor'.

This is the rate at which you give up the annual payments you'll get in retirement in exchange for getting some cash up front. The higher the commutation factor, the better the deal is for you.

Public sector pension schemes, such as those operated by the NHS and the civil service, and in education, tend to have a commutation factor of 12.

Private sector schemes are more likely to have a higher commutation factor of 14 or 15.

Pension tax-free lump sum FAQs