Should I take my pension tax-free cash before the Budget?

That depends on what you need the money for. Once paid, the cash is outside the pension, and paying it back in can be taxed as an unauthorised payment. Under the rules in force on 13 October 2026 you can take up to 25% of each pension tax free, capped at £268,275 across all your pensions unless you hold a protected allowance.

The rules in force today

Up to 25% of each pension: A quarter of the amount built up in a pension can be paid as a tax-free lump sum. The rest is taxed as income when it is drawn.
A cap of £268,275: The lump sum allowance limits the tax-free cash you can take across all your pensions. It is higher if you hold a protected allowance from before April 2024.
A second cap of £1,073,100: The lump sum and death benefit allowance covers tax-free lump sums paid to you in your lifetime and to your beneficiaries if you die before 75.
From age 55: The minimum age for taking money from a personal pension rises to 57 on 6 April 2028.

What happens once it is taken

The money leaves the pension. Interest and growth on it can be taxed from then on, unless it goes into an ISA or another tax-free account within that account's limits.
It becomes part of your estate for inheritance tax straight away. Until 6 April 2027, money left inside most pensions is outside it.
Paying it back into a pension can be penalised. Where lump sums of more than £7,500 are taken in 12 months and pension contributions are then increased by more than 30% of the lump sum as a planned step, HMRC treats the lump sum as an unauthorised payment and taxes it as one.
Taking only the tax-free cash leaves your annual allowance at £60,000. The £10,000 money purchase annual allowance applies once you take taxable income, as our answer on the money purchase annual allowance sets out.

How quickly a Budget change can apply

A Budget measure can take effect on the day it is announced or from a later date, and the government decides which. The increase in capital gains tax rates announced on 30 October 2024 applied to disposals made from that day.

There is no way to know before 28 October 2026 whether the Budget will touch tax-free cash. A decision made now rests on what the money is for, what it would earn outside the pension and what it adds to your estate.

Once tax-free cash is paid, the money is outside the pension and counts in your estate for inheritance tax.

Where this fits

What you would do with the lump sum decides whether taking it now makes sense.

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The advisers for this subject

Sunny Bharj

Independent Financial Adviser

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.