Yes — if you have a defined contribution pension, you can take your 25% tax-free pension lump sum in stages rather than in a single payment. You do this by crystallising portions of your pot over time, using either phased drawdown or repeated uncrystallised funds pension lump sum (UFPLS) payments. The total tax-free cash you can take across all your pensions is capped at £268,275, known as the lump sum allowance, and spreading withdrawals across years usually leaves more of your pot invested, gives you tighter control over your annual tax bill, and preserves valuable death benefit advantages.1GOV.UK. Tax on Your Private Pension Contributions – Lump Sum Allowance
Which Pensions Let You Do This
Defined contribution pensions — where your pot is built from contributions invested over time — offer this flexibility as standard. You can move portions of the pot into drawdown or take lump sums at whatever pace suits you.2MoneyHelper. What Is Flexible Retirement Income Pension Drawdown
Defined benefit pensions (final salary schemes) work differently. They calculate your retirement income from years of service and salary, so there is no pot to dip into. The tax-free lump sum from a defined benefit scheme is normally paid as a one-off when you start drawing your pension. To get staged access you would have to transfer out into a defined contribution arrangement, and for any transfer valued at £30,000 or more the law requires advice from a financial adviser authorised by the Financial Conduct Authority before the transfer can go through.3The Pensions Regulator. Transfers Out Transferring away from a guaranteed income for life is a serious step that goes wrong more often than people expect.
The £268,275 Cap Applies Across All Your Pensions
Since the lifetime allowance was abolished on 6 April 2024, the main limit on tax-free pension cash is the lump sum allowance of £268,275. It is a personal cap that applies across every pension you hold, not per scheme. Every tax-free lump sum you take, from any pension, reduces your remaining allowance. If you hold certain protections carried over from the old lifetime allowance regime, your allowance may be higher.4GOV.UK. Find Out the Rules About Individual Lump Sum Allowances
In practice, this means anyone with total pensions worth more than roughly £1,073,100 cannot take a full 25% tax-free. Their tax-free cash is capped at £268,275 regardless of pot size. For most savers whose pensions fall below that threshold, the 25% works as expected.
Method 1: Phased Drawdown
Phased drawdown (sometimes called partial drawdown) is the most popular way to take tax-free cash in stages. You pick a portion of your uncrystallised pot and move it into a drawdown account. When that slice enters drawdown, your provider pays you 25% of it as tax-free cash. The remaining 75% stays invested inside the drawdown account, and you can withdraw from it as income, taxed at your marginal rate, whenever you choose.2MoneyHelper. What Is Flexible Retirement Income Pension Drawdown
The portion you haven’t touched stays uncrystallised. It keeps growing and retains its full 25% tax-free entitlement for whenever you next decide to crystallise another slice. If your investments perform well, the tax-free amount from that future slice will be larger, because it is calculated on the value at the point you crystallise.
The real advantage here is income tax management. Say you have a £400,000 pot and need £20,000 in cash this year. You could crystallise £80,000: £20,000 comes out tax-free and the other £60,000 sits in drawdown untouched. You have not triggered any income tax on that £60,000 because you haven’t withdrawn it yet. Compare that with taking a full £100,000 tax-free lump sum in one go, which would leave the remaining £300,000 in drawdown with no further tax-free entitlement attached. The phased approach keeps your options open.
Method 2: UFPLS
The second route is the uncrystallised funds pension lump sum, or UFPLS. This works differently: you take a single cash payment straight from your uncrystallised pot without setting up a drawdown account at all. Each payment is split so that 25% is tax-free and 75% is taxed as pension income at your marginal rate.5HM Revenue & Customs. Pensions Tax Manual – Uncrystallised Funds Pension Lump Sum
The name suggests a one-off payment, but you are not limited to one. HMRC’s rules place no cap on the number of UFPLS payments you can take from a money purchase arrangement, though your scheme may impose its own limits.5HM Revenue & Customs. Pensions Tax Manual – Uncrystallised Funds Pension Lump Sum
UFPLS is administratively simpler because there is no separate drawdown account to run. The downside is that 75% of every payment is taxed immediately. With phased drawdown you can crystallise a slice, take the 25% tax-free, and leave the 75% invested without paying any tax until you actually withdraw it. UFPLS doesn’t give you that breathing room.
Choosing Between the Two
The right method depends on what you’re trying to achieve. Phased drawdown works best if you want a flexible income stream and want to control exactly when, and how much, taxable income you take each year. It is the better tool for long-term tax planning because it separates the decision to crystallise from the decision to take income.
UFPLS suits people who want occasional lump sums without the complexity of managing a drawdown account. If you just need to pull £10,000 out once a year to top up other income, UFPLS gets it done with less paperwork. You lose some control over the timing of your tax bill.
Both methods use up your lump sum allowance at the same rate: 25% of whatever you crystallise or withdraw.
The Money Purchase Annual Allowance Trap
Once you flexibly access your defined contribution pension, whether through drawdown income or a UFPLS payment, you trigger the money purchase annual allowance (MPAA). This drops the amount you can contribute to money purchase pensions with tax relief from £60,000 a year to £10,000 a year.6MoneyHelper. The Money Purchase Annual Allowance (MPAA) for Pension Savings
This matters most if you are still working and paying into a pension while also drawing from another. There is a useful distinction here: taking your tax-free lump sum alone does not trigger the MPAA. It is triggered only when you take taxable income from drawdown or take a UFPLS payment. So if you crystallise a portion via drawdown and take only the 25% tax-free cash, leaving the 75% taxable portion untouched, the MPAA is not activated. That single fact is one of the strongest arguments for using phased drawdown rather than UFPLS if you are still contributing.
One exception: the small pots rule. If a pension pot is worth £10,000 or less and you take it all in one go under the small pot lump sum rules, the MPAA usually is not triggered. For personal pensions you set up yourself, you can use this rule on up to three separate pots. There is no limit on small pot encashments from workplace pensions.7MoneyHelper. Take Your Whole Pension in One Payment
Expect Emergency Tax on Your First Payment
When you take your first drawdown payment or UFPLS, your provider often does not have your correct tax code from HMRC. Without it, they apply an emergency tax code, which can result in significantly more tax being deducted than you actually owe.8GOV.UK. Emergency Tax Codes
The overtaxation happens because the emergency code treats a single payment as though you will receive the same amount every month for the rest of the tax year. A one-off £20,000 withdrawal gets taxed as if you earn £240,000 annually. You get the money back, but it takes time. HMRC usually updates your tax code within a few weeks, and subsequent withdrawals from the same provider are then taxed correctly. If the overtaxation isn’t corrected automatically by the end of the tax year, you can reclaim it directly from HMRC. Check your tax code online after the first withdrawal and update your details if the pension income isn’t showing correctly.
The Death Benefit Case for Going Slowly
One of the strongest arguments for taking tax-free cash gradually is what happens to uncrystallised funds when you die. If you die before age 75 and your pension funds have not been crystallised, the entire pot can normally be paid to your beneficiaries as a tax-free lump sum, provided it is paid within two years and falls within the lump sum and death benefit allowance.9HM Revenue & Customs. Pensions Tax Manual – Uncrystallised Funds Lump Sum Death Benefit
If you die after 75, uncrystallised funds paid as a lump sum are taxed as income at the recipient’s marginal rate. Funds already in drawdown follow similar rules: tax-free if you die before 75, taxable at the recipient’s rate after. The key difference is that uncrystallised funds have not had any tax-free entitlement used up, so the full amount is still there for your beneficiaries.
By crystallising only what you need each year, you keep more of the pot in uncrystallised status for longer. Taking the full 25% tax-free upfront and parking it in a bank account means that cash is now part of your estate for inheritance tax purposes and has lost its pension wrapper protections.
How to Set Up a Staged Withdrawal
Contact your pension provider and ask for their drawdown application form or benefit request form. You will need a current valuation of your pension, your policy or member number, and verified bank account details. Most providers accept requests through a secure online portal, though some still require signed paper forms for larger amounts.
On the form you specify either a fixed pound amount or a percentage of your pot to crystallise for this stage. If your pension is invested across multiple funds, you may need to say which investments to sell to generate the cash. Being specific avoids delays, because vague instructions force the provider to come back with questions.
Processing usually takes between five and ten business days once the provider has everything they need. They verify your identity under anti-money laundering rules, confirm your tax code with HMRC, and calculate how much of your lump sum allowance has been used. The tax-free portion is usually paid by BACS, which takes three working days to clear.
Free Guidance Before You Start
Before making any withdrawal decisions, you are entitled to a free appointment with Pension Wise, a government-backed service run by MoneyHelper. You can book if you are 50 or over with a defined contribution pension, or under 50 if you have inherited a pension, are retiring early on ill-health grounds, or your scheme allows early access. The appointment covers your withdrawal options, how each one is taxed, and how to spot pension scams.10MoneyHelper. Pension Wise: Free Pension Guidance
Pension Wise provides guidance, not regulated financial advice, so they will not tell you which option to choose. If your situation is complex, for example multiple pensions, a defined benefit transfer, or interaction with means-tested benefits, paying for independent financial advice is worth the cost. The difference between a well-planned phased withdrawal strategy and an ad hoc one can easily amount to tens of thousands of pounds in unnecessary tax over the course of a retirement.