Can you take your entire pension — as a lump sum?
Technically, yes. From age 55 (57 from April 2028), the full pot can be withdrawn in a single payment. But the tax consequences of doing so are substantial — and irreversible.
- ▸A defined contribution pension pot can be withdrawn in full as a single lump sum from age 55 (57 from 2028).
- ▸Only 25% of the pot is tax-free. The remaining 75% is added to taxable income for that year and taxed at the marginal rate.
- ▸On a £150,000 pot taken in one year with no other income, the tax bill is approximately £27,432 — leaving £122,568 after tax.
- ▸Spreading the withdrawal across multiple tax years can significantly reduce the total tax paid.
Yes — but the tax bill may be large
Since the pension freedoms introduced in April 2015, anyone aged 55 or over with a defined contribution pension can withdraw the entire pot in one go. There is no maximum withdrawal limit and no requirement to buy an annuity or enter drawdown first.
The mechanism is straightforward: request a full encashment from the pension provider. The provider will pay out the full amount minus tax. For most people, this will be processed as a UFPLS — 25% tax-free, 75% taxable — or as a combination of a tax-free PCLS plus a fully taxable drawdown payment.
The right to take the whole pot doesn't mean it's tax-efficient to do so. The 75% taxable portion is added to all other income for the tax year. For anything other than a very small pot, this pushes the total well into higher-rate tax bands.
Only 25% is tax-free; the rest is income
The tax-free portion is capped at 25% of the pot, up to the lump sum allowance of £268,275. For a pot of £150,000, the tax-free amount is £37,500. The remaining £112,500 is treated as earned income for the year it's received.
That £112,500 is stacked on top of any other income: state pension, employment earnings, rental income, savings interest. The combined total determines which tax bands apply.
The pension lump sum tax calculator shows the exact tax due based on pot size and other income.
Worked example: £150,000 pot, all in one year
Assumptions: the individual has no other income in the tax year, is a UK resident, and has a full personal allowance of £12,570. The pot is £150,000.
- Tax-free (25%): £37,500
- Taxable (75%): £112,500
Tax calculation on the £112,500:
| Band | Taxable amount | Rate | Tax |
|---|---|---|---|
| Personal allowance | £12,570 | 0% | £0 |
| Basic rate (£12,571–£50,270) | £37,700 | 20% | £7,540 |
| Higher rate (£50,271–£112,500) | £62,230 | 40% | £24,892 |
| Total | £32,432 |
After tax: £150,000 − £32,432 = £117,568 received.
The effective tax rate on the full pot is 21.6%. On the taxable portion alone, it's 28.8%.
If the individual also receives the full state pension (£11,502.40), the personal allowance is already consumed. The tax on the pension withdrawal rises because none of the allowance offsets it — the bill increases to approximately £37,032.
Spreading over multiple tax years instead
The same £150,000 pot withdrawn over three tax years — £50,000 per year — produces a dramatically different tax outcome.
Each year: £12,500 tax-free (25%), £37,500 taxable.
Tax per year on £37,500 (assuming no other income):
| Band | Taxable amount | Rate | Tax |
|---|---|---|---|
| Personal allowance | £12,570 | 0% | £0 |
| Basic rate | £24,930 | 20% | £4,986 |
| Total per year | £4,986 |
Over three years: £4,986 × 3 = £14,958 total tax.
Compared with £32,432 for taking it all at once, spreading the withdrawal saves £17,474 — purely by keeping each year's taxable income within the basic rate band.
The trade-off: the pot remains invested (and at market risk) for the two additional years. And the money purchase annual allowance is triggered as soon as the first flexible payment is taken, limiting future pension contributions to £10,000 per year.
The income tax retirement calculator models withdrawal strategies across multiple years to find the most tax-efficient approach.
- •Withdrawing an entire pension pot is irreversible. Once the money leaves the pension wrapper, it loses all associated tax advantages — no further tax-free growth, no inheritance tax benefits, and no ability to reclaim the annual allowance.
- •A full encashment triggers the money purchase annual allowance (MPAA), reducing future pension contribution tax relief to £10,000 per year.
- •Emergency tax will almost certainly apply to the first payment, meaning the initial deduction will be higher than the final liability. The excess is reclaimable but requires action (forms P50Z, P53Z, or P55).
- •Taking a large lump sum may affect entitlement to means-tested benefits, including Pension Credit, Housing Benefit, and Council Tax Support.
- ▸Since April 2015, anyone aged 55 or over can withdraw their entire defined contribution pension pot in a single payment. [gov.uk]
- ▸25% of the pot is tax-free; the remaining 75% is taxed as income at the individual's marginal rate. [gov.uk]
- ▸The personal allowance of £12,570 is tapered by £1 for every £2 of income above £100,000, reaching zero at £125,140. [gov.uk]
This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.