Sunny Bharj
Independent Financial Adviser
Tony Springer
Independent Financial Adviser
You can normally take 25% free of tax and the rest is taxed as income. The order you do things in changes what you keep.
There are three ways to get at a pension: take it as cash, buy a guaranteed income, or leave it invested and draw from it. Most people end up using more than one, and the choice is rarely permanent except where an annuity is bought.
Two things routinely cost people money. Taking a large amount in one go pushes income into a higher rate band for that year, and taking taxable income for the first time cuts how much you can pay back in from £60,000 to £10,000.
gov.uk and the HMRC Pensions Tax Manual, checked 23 September 2026. 2026/27 rules.
The lifetime allowance was abolished in April 2024 and replaced by the lump sum allowance and the lump sum and death benefit allowance. The old 55% charge no longer exists: a lump sum above the allowance is taxed as income, and the provider deducts it before you are paid.
Take the whole pot or a slice of it. Normally 25% comes out free of tax and the rest is taxed as income in the year you take it, which is what makes a large single withdrawal expensive.
Buy a guaranteed income for life, or for a fixed term. It removes investment risk and the risk of living a long time, and the decision is usually permanent.
Leave the money invested and take an income from it. Flexible, and the investment risk and the risk of drawing too much stay with you.
Once triggered, the money purchase annual allowance is £10,000 and carry forward cannot be added to it. Defined benefit saving is then tested against an alternative allowance of £30,000.
A provider usually applies an emergency code on a month one basis to your first flexible payment. That treats the payment as though you were going to receive the same amount every month for a year, so the tax deducted is far more than you owe.
It is not lost. You reclaim it in the year on form P55 where you have taken only part of the pot, P53Z where you have emptied it, or P50Z where you have emptied it and stopped working. If you do nothing it is squared up at the end of the tax year.
An annuity moves the risk of poor markets and the risk of living a long time to the insurer. What it costs you is the right to change your mind.
Normally from 55, rising to 57 on 6 April 2028. Some people have a protected pension age, and ill health can allow earlier access.
It depends how you take it. Taking an uncrystallised funds pension lump sum means a quarter of each payment is tax free. Taking tax free cash up front and then drawing income means the income is fully taxable.
No. It was abolished in April 2024. What remains is a cap on the tax free lump sum, currently £268,275, and a separate allowance covering certain lump sum death benefits.
Yes, though once you have taken taxable income the most you can pay in with tax relief drops to £10,000 a year and carry forward is not available on top.
Very likely, because providers apply an emergency code to it. Reclaim it on the relevant form, or leave it to be corrected at the end of the tax year.
Rarely a good idea for a large pot. Only a quarter is tax free and the rest is added to your income for the year, which commonly pushes part of it into a higher rate band. Spreading withdrawals across tax years usually leaves you with more.
The value of investments and any income from them can fall as well as rise and you may get back less than you invest. Pension benefits and their tax treatment depend on your circumstances and on current rules, which can change. Accessing benefits can have lasting tax and income consequences.
Taking taxable income from a pension. Taking only your tax free cash does not.
Read the answer →An annuity removes investment and longevity risk and is permanent. Drawdown keeps control and keeps the risk. Many people use both.
Read the answer →Independent Financial Adviser
Independent Financial Adviser
A first conversation of about twenty minutes, at no cost to you. Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write.