Take your pension as multiple lump sums

If you have a defined contribution pension, you have the option to:

• leave your pension invested so it can continue to grow

• take cash lump sums as and when you need them – you can usually decide how much and how often. 

This option is called Uncrystallised Funds Pension Lump Sum (UFPLS) and is a way to access your pension in a flexible way.  

While your pension remains invested, its value can rise or fall until you take the money. 

Not sure what type of pension you have? You can use our tool to find out your pension type or ask your pension provider.

25% of each lump sum is usually paid tax-free. The rest is taxed along with any other earnings you have. 

You’ll only get less than 25% paid tax-free if you receive more than the lump sum allowance (LSA). The LSA is £268,275 for most people and counts all the tax-free cash taken from all your pensions. 

You can take your entire pension as multiple lump sums or take some as lump sums and the rest in a different way. 

For example, you could:

• take lump sums while you’re still working

• convert your remaining pension pot into guaranteed income when you fully retire, including the option to take up to 25% as a tax-free lump sum.   

Before deciding, always compare all the ways to take your pension

Taking lump sums from your pension lets you access your money as and when you need it – a bit like taking money out of a standard savings account. 

It also means you can spread the amounts you take across multiple tax years, so your total income doesn’t push you into a higher tax bracket.

But there are some potential downsides too. Here’s what else to consider.

While your pension is left invested, its value can rise and fall until you take the money. This means the amount you can take out might be higher or lower than expected.

How much your pension is worth depends on how much is paid in, how well the investments perform and the charges your provider takes off. 

You can usually choose how often to access your pension and how much to take each time. This means you need to plan carefully to reduce the risk of running out of money. 

For example, your money might not last if you:

• live longer than you expect – many underestimate the length of their retirement

• take out too much in the early years 

• do not adjust the amounts you take if your invested pension grows less than you’ve planned for. 

Many pension providers manage and choose the investments for you, typically putting your money into their default fund. 

This usually means your money is moved to more stable investments the closer you get to your scheme’s ‘normal pension age’ – which is often the same as your State Pension ageOpens in a new window

This happens as your provider assumes you’ll take all your pension money at your normal pension age. For example, you might take a cash lump sum and use the rest to get a regular income for life (an annuity).

If you want to leave your pension invested past your normal pension age, you might miss out on investment growth by leaving your money in your provider’s default fund.  

For more information, see our guide How to choose your own pension investment options.

When you pay into a pension, the government usually adds a top-up payment called tax relief. This is the money you’d normally pay in Income Tax. 

You can usually get tax relief on all your pension contributions up to the annual allowance. For most people, this means:  

• your contributions must be less than (or equal to) the amount you earn, and  

• contributions from you and your employer must be less than £60,000.  

But if you take taxable money from your defined contribution pension (like multiple lump sums), the £60,000 limit reduces to £10,000. This is called the money purchase annual allowance (MPAA).  

For more information, see our guide How tax relief boosts your pension contributions. 

If taking money from your pension increases your overall income or savings, this might affect any benefits you’re entitled to claim.

You can use our Benefits calculator to check what you’re entitled to now and how it might change if your income or savings increased. 

You can also use AdvicelocalOpens in a new window to find free and confidential benefits advice.

For more information, see our guide Benefits in retirement. 

Any money held in your pension usually cannot be claimed by anyone you owe money to, even if you’re declared bankrupt or have a formal debt repayment plan.

But if you take money out of your pension, you might be told to use it to make regular repayments or the whole lump sum could be claimed. 

Before taking pension money, you can talk to a free debt adviser to understand your options. 

For more information, see our guide Can I use my pension to pay off debt? 

If you die before age 75, your pension can usually be inherited tax-free as long as:

• the money is paid to your nominated beneficiaries within two years of your pension provider being aware of your death 

• the total amount inherited from all your pensions is not higher than the lump sum and death benefit allowance (LSDBA).

The LSDBA is £1,073,100 for most people and counts tax-free lump sums taken from your pension before and after you die. This means your limit might be lower if you’ve already taken tax-free money. Your beneficiaries will usually pay Income Tax on any amounts above the LSDBA.  

In all other cases, including if you die after age 75, your pension usually cannot be inherited tax-free. The inherited amount is normally added to your beneficiary’s other income to calculate how much Income Tax is due. 

For more information, including the rules on Inheritance Tax, see our guide What happens to my pension when I die?  

Taking multiple lump sums is one way to take money from your defined contribution pension. 

You can also choose to:

• take your pension in one go

• take some tax-free cash (up to 25%), and: 
  • leave the rest invested in a flexible pension drawdown plan until you need it
  • convert the rest into guaranteed income by buying an annuity
  • set up a flexible income that you can stop or change at any time
  • take the rest as one or more lump sums. 

It’s worth asking your pension provider if you have any special features before comparing your options. For example, your pension might offer guaranteed annuity rates that would give you a higher guaranteed income than you could buy on the open market.

For more information on all your options, see our guide What can I do with my pension pot?

We also offer free and impartial Pension Wise guidance appointments to explain your pension options.

If taking multiple lump sums is right for you, here are the steps to take.

You do not have to stay with your existing pension provider – they might not offer the option of taking multiple lump sums or another provider has a better deal.

For example, some providers might:

• charge a fee every time you take a lump sum

• limit how much you can take each time. 

Comparison sites for pension providers do not exist, so you’ll usually either need to:

• manually search for pension providers that allow multiple lump sums

• pay a regulated financial adviser to recommend a provider and product for you.

For help comparing providers yourself, see our guide about shopping around for pension income products. 

If you’d prefer to get advice, our tool can help you find a retirement adviser. They must tell you how much they’ll charge before you commit.

If a different pension provider offers a better deal, you can consider moving your pension to them. For more information, see our guide about transferring your defined contribution pension. 

Do not access your pension or transfer any money to a pension provider because of a cold call, visit, email or text. It’s likely a scam designed to steal your money. 

You might lose all your retirement savings and have to pay an expensive tax bill.

For more information, see our guide How to spot a pension scam.

When you take multiple lump sums from your pension, 25% of each amount is usually paid tax-free – as long the total amount of tax-free cash taken from all your pensions isn’t higher than the lump sum allowance (£268,275 for most people). 

The other 75% counts as earnings and is added to your other income to calculate how much Income Tax you need to pay for that tax year (6 April to 5 April). 

This means you might be able to spread your lump sums across different tax years to avoid moving into a higher Income Tax band.

You can see the Income Tax bandsOpens in a new window and Scottish Income Tax bandsOpens in a new window on GOV.UK. 

If you already have earnings of £25,000 and take a £40,000 lump sum from your pension on 1 April, your total taxable income would be £55,000 – as £10,000 can usually be taken tax-free.

This pushes you into a higher tax band, so you’ll pay around £6,950 in tax on the lump sum (£8,650 if you live in Scotland). 

But if you take £20,000 on 1 April and another £20,000 on 6 April when the new tax year starts, you’d stay in a lower tax band and would pay around £6,000 in tax on the lump sum (£6,250 in Scotland). 

Our calculator can estimate how much tax you might pay on different lump sums, based on the Income Tax rates for England, Wales and Northern Ireland.

Which? has a Pension tax calculatorOpens in a new window that includes the Scottish Income Tax rates.

Pension providers typically use temporary or emergency tax codes when you take your first lump sum. 

This usually means you’re taxed as if you’ll receive that lump sum every month, so you might pay more tax than you should. 

If you think you’ve overpaid tax, you can check how to claim a tax refundOpens in a new window on GOV.UK. HMRC might also pay it back to you automatically at the end of the tax year. 

For more information, see our guide How tax works on pension income.

As your invested pension can rise and fall in value until you take your lump sums, it’s important to regularly check how well it’s performing.

If your pension grows at a slower rate than expected, you might want to consider:

• adjusting the amount you’re planning to take each time

• choosing a different way of taking your money 

• changing how your pension is invested.

It’s also worth comparing pension providers at least once a year to see if you might be better off transferring your pension elsewhere.

For more information, see our guides:

• How to choose your own pension investment options

• How to transfer or combine defined contribution pensions

To help understand the options for taking your pension, you can have a free Pension Wise appointment. This explains: 

• when you can take your pension 

• the different ways you can take money 

• how each option is taxed  

• how to spot and avoid scams. 

You’re eligible for an appointment if you have a UK-based defined contribution pension and are: 

• 50 or over 
• under 50 and:  
  • retiring early due to poor health or
  • have inherited a pension. 

You can start an instant online appointment or book a date and time with a pensions specialist. 

If you have any questions about your pension, our pension specialists can help – it doesn’t matter how old you are.  

How you choose to take your pension can affect how comfortable your retirement is.  

A regulated financial adviser can help you plan for retirement, including:  

• recommending products and providers to use 

• advising where to invest your money  

• explaining your options to reduce the tax you might need to pay.