Got a pension question?
- Our help is impartial and free to use. Get in touch online or over the phone on 0800 011 3797

Taking your pension as a number of lump sums

You can leave money in your pension pot and take lump sums from it when you need to – until your money runs out or you choose another option. This is also known as ‘Uncrystallised Funds Pension Lump Sum’ (UFPLS).

How does taking your pension as a number of lump sums work?

You can take money from your pension pot as and when you need it until it runs out. It’s up to you how much you take and when you take it.

Each time you take a lump sum of money, 25% is tax-free. The rest is added to your other income and is taxable.

The remaining pension pot stays invested. This means the value of your pension pot and future withdrawals aren’t guaranteed.

Keeping your pension pot invested creates the potential for growth, but investments can go up or down.

The main advantage of this option is that you can spread the money you take over a number of years. This can help to reduce the overall amount of tax you pay.

Plus, the tax-free cash stays invested and in a tax-efficient environment – as growth on pension pots is tax-free.

Be aware that there might be charges each time you make a lump sum withdrawal. Also, there might be limits on how many withdrawals you can make each year.

Not all providers offer this option. If your current provider doesn’t offer it, you can transfer your pot to another provider. But you might have to pay a fee to transfer.

arrow icon

Things to think about

Taking out one or more lump sum won’t provide a regular retirement income for you or for any dependants after you die.

You need to plan how much money you can afford to take with this option. Otherwise, there’s a risk you’ll run out of money. This could happen if:

  • you live longer than you’ve planned for – most people underestimate how long their retirement will be
  • you take out too much in the early years
  • your investments don’t perform as well as you expect, and you don’t adjust the amount you take accordingly.

You’ll need to consider how to invest the money left in your pension pot. It’s important to regularly review your investments.

You might want to use a financial adviser to help you decide what funds to invest your pension pot in.

arrow icon

If you’re looking for products that offer simple ready-made investment options, you can use our pension drawdown investment pathways comparison tool to help you shop around.

It’s important to understand what fees you might be charged, as they can deplete your pot. Charges vary between providers, and some policies include multiple charges.

When you take any money out of your pension pot, any growth in its value is taxable, whereas it will grow tax-free inside the pot.

arrow icon

If you haven’t taken all your tax-free cash by age 75, this part could be taxed if there’s unused tax-free cash in your pension pot when you die. See ‘What happens when you die’ below for more information. 

Taking your pension in lump sums could reduce your entitlement to means-tested State benefits now or in the future. To find out how income or savings can affect benefits, see our guides Benefits in retirement and How to fund your long-term care – a beginner’s guide.

You can’t use this payment option if you have primary or enhanced protection, or if you’re entitled to a tax-free lump sum which is more than 25%.

arrow icon

Shopping around

Check if your provider offers the option of taking lump sums.

Some providers will limit how much you can take out, and how often you can take money out.

Fees will also vary – some providers might charge a fee every time you take money out.

It’s important to shop around to make sure you get value for money and a product to suit your needs.

Comparing products yourself can be difficult. So you can get help from a regulated financial adviser. It’s the adviser’s job to recommend the product that’s most suited to your needs and circumstances. 

arrow icon

If you’re looking for products that offer simple ready-made investment options, you can use our pension drawdown investment pathways comparison tool to help you shop around.

Tax you’ll pay

Three quarters (75%) of each lump sum taken counts as taxable income.

This is added to the rest of your income. Depending on how much your total income for the tax year is, you could find yourself pushed into a higher tax band.

So, if you take lots of large lump sums, or even a single lump sum, you could end up paying a higher rate of tax than you normally do.

If you spread the lump sum amounts over more than one tax year, you might pay less tax on them.

For example, your pot is £60,000. You take out £4,000 each year – £1,000 is tax-free and £3,000 is taxable. You work part-time and earn £12,070 a year. The total of your earnings and the taxable cash you’ve taken from your pot is £15,070. This is above the standard Personal Allowance of £12,570. So you pay £500 in tax.

Your provider will usually deduct emergency tax from the first lump sum payment. This means you might pay too much tax if you take one large sum when you first start taking your money out and have to claim the money back. Or you might owe more tax if you have other sources of income.

arrow icon

Extra tax charges or restrictions might apply if your pension savings exceed the lifetime allowance, which is currently £1,073,100. Or if you have less lifetime allowance available than the amount you want to withdraw.

arrow icon

Continuing to pay in

If you take your pension pot in one go and you don't do this under the small pot lump sum rules (see below for more information) then this might affect how much you can continue to save for retirement.

In 2021/22, the Money Purchase Annual Allowance is £4,000.

If you want to carry on building up your pension pot, this option might not be suitable.

arrow icon

Means-tested benefits and debts

Taking money from your pension may affect your eligibility for means-tested state benefits. 

A company or person that you owe money to cannot normally make a claim against your pensions if you've not started taking money from them yet. This also applies to County Court Judgements and Individual Voluntary Arrangements. Once you have withdrawn money from your pension, however, you may be expected to pay.

If you need to clear debts, it’s important to get specialist help before accessing your pension.

What happens when you die?

If you die before the age of 75

Any untouched part of your pension pot will usually pass tax-free to your nominated beneficiary. This is the case if it’s paid within two years of the provider becoming aware of your death. If the two-year limit is missed, it will be added to your beneficiary’s other income and taxed in the usual way.

If you die after the age of 75

Any untouched part of your pension pot that you pass on – either as a lump sum or income – will be added to your beneficiary’s other income and taxed in the normal way.

Inheritance Tax

Any money you’ve drawn from your pension pot and not spent will count as part of your estate for Inheritance Tax purposes. 

The Lifetime allowance charge

If the value of all your pension savings is above £1,073,100 (tax year 2021/22) when you die, more tax charges might apply.

arrow icon

Your other retirement income options

Taking lump sums is just one options for using your pension pot to provide a retirement income.

Because of the risk of running out of money, it’s important to think carefully before using this method to fund your retirement income.

Scams

Beware of pension scams where they contact you unexpectedly about an investment or business opportunity that you haven’t spoken to them about before. You could lose all your money and face tax of up to 55% and extra fees.

arrow icon

Can you continue contributing to a pension if you take lump sums?

If you’re planning to take lump sums and make further contributions into the same pension or another one, you need to be aware of the Money Purchase Annual Allowance.

This limits the tax relief on contributions to a defined contribution pension pot to £4,000.

arrow icon

If you’re considering reinvesting your tax-free lump sum into a pension, consider speaking to a financial adviser. They can help you look at whether putting the money back into a pension is the best option for you and help you avoid any pitfalls.

Next steps

arrow icon
Was this information useful?
Thank you for your feedback.
We’re always trying to improve our website and services, and your feedback helps us understand how we’re doing.
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Talk to us live for…
Talk to us live for…
Talk to us live for pensions guidance using…
Talk to us live for money guidance using…
Hours
  • Mon – Fri:9.00am – 5.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for money guidance using the telephone
Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for pensions guidance using web chat
Hours
  • Mon – Fri:9.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed
Talk to us live for money guidance using webchat
Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat:8.00am – 3.00pm
  • Sun and bank holidays:Closed
Talk to us for pensions guidance using our web form

We aim to respond within 5 working days

Talk to us for money guidance using our web form

We aim to respond within 2 working days

Talk to us live for money guidance using WhatsApp

Download app: WhatsApp

For help sorting out your debts or credit questions. For everything else please contact us via Webchat or telephone.