The basic rule
Most people can take up to 25% of their pension pot completely tax-free, usually from age 55 (rising to 57 from 2028). This can be taken as a single lump sum when you first access your pension, or in stages if you're using drawdown and taking money gradually.
How it interacts with the rest of your pot
If you take the 25% tax-free lump sum up front, the remaining 75% is then subject to Income Tax as you draw it, whether via drawdown or an annuity. Alternatively, with drawdown, you can take tax-free and taxable amounts proportionally in stages (sometimes called "uncrystallised funds pension lump sums" or UFPLS) rather than taking all the tax-free cash at once — useful for managing your tax position over several years rather than in one go.
There's usually a cap
While 25% is the standard proportion, there's also an overall monetary limit on how much tax-free cash you can take across all your pensions in your lifetime (linked to a fixed allowance following pension tax reforms). Very large pension pots may not be able to take a full 25% tax-free once this cap is reached — relevant mainly to higher earners with substantial pension savings.
Common traps
- Taking the tax-free cash and leaving the rest invested but forgetting the remaining 75% is now fully taxable when eventually withdrawn.
- Withdrawing a large lump sum from the taxable portion in one go, unexpectedly pushing income into a higher tax band for that year.
- Assuming every type of pension allows exactly 25% — some older or unusual scheme types have different rules, so it's worth checking your specific scheme.
Key takeaways
- Up to 25% of most pensions can be taken tax-free, generally from age 55 (57 from 2028).
- The remaining 75% is taxed as income when withdrawn, whenever that happens.
- There's a lifetime monetary cap on total tax-free pension cash, relevant to larger pots.
- Spreading withdrawals can help manage your overall tax position more efficiently than one large withdrawal.