You can take up to 25% of each pension pot tax-free, subject to a lifetime ceiling of £268,275 across every pension you hold. That is the headline answer to how much you can take tax-free from your pension, and for most savers it is all they need. The complications sit around the edges: when you can access it, how you take it, and what the remaining 75% costs you in tax.
The 25% Rule and the £268,275 Cap
The core rule applies to defined contribution pensions, where your savings sit as an invested pot. You can withdraw up to a quarter of the value of that pot without paying income tax on it.1GOV.UK. Tax on Your Private Pension Contributions: Lump Sum Allowance A £200,000 pot yields £50,000 tax-free. A £400,000 pot yields £100,000. The remaining 75% either stays invested or becomes taxable income when you draw it.
The 25% figure applies to each pension separately, but the total tax-free cash you can ever take across all your pensions is capped at £268,275. This is the lump sum allowance introduced by the Finance Act 2024, which replaced the older lifetime allowance system.2Legislation.gov.uk. Finance Act 2024 – Schedule 9, Part 2 Every tax-free withdrawal counts against this single limit, regardless of which provider paid it.3GOV.UK. Find Out the Rules About Individual Lump Sum Allowances
When the Cap Actually Affects You
If your combined pension savings are below roughly £1.07 million, the 25% calculation on your own pots will run out before you get anywhere near £268,275. The cap only bites once 25% of your total pension wealth would have exceeded that figure. Anything above the ceiling that would otherwise have been tax-free is taxed as income instead.
Higher Limits With Protected Allowances
If you registered for pension protection under earlier rule changes, you may be entitled to a higher tax-free amount. The protections and their limits are:4GOV.UK. Taking Higher Tax-Free Lump Sums With Protected Allowances
- Fixed protection (2012): up to £450,000
- Fixed protection 2014: up to £375,000
- Fixed protection 2016: up to £312,500
- Primary protection: up to £375,000, or higher if your certificate shows specific lump sum protection
- Enhanced protection: up to £375,000 without lump sum protection, or the protected percentage on your certificate if you have it
- Individual protection 2014 or 2016: 25% of your pension value at the relevant date, capped at £375,000 or £312,500 respectively
Protection raises the total monetary ceiling, not the 25% figure itself. You still cannot take more than a quarter of any individual pot as tax-free cash.
When You Can Take Tax-Free Cash
The earliest you can access pension money is the normal minimum pension age, currently 55. It rises to 57 on 6 April 2028.5GOV.UK. Increasing Normal Minimum Pension Age Withdrawals before that count as unauthorised payments and attract tax charges that can reach 55%.
You do not need to have stopped working. With a defined contribution pension you can start drawing at 55 while still employed. Defined benefit schemes usually tie access to the point you actually start receiving pension income, which may be later. If you have a life expectancy of less than 12 months, serious ill-health rules let you access the full pension earlier, with the tax treatment depending on your age and the size of the payment.
Two Ways to Take the Money
You do not have to take all 25% at once. The route you pick affects how the rest of the pension is taxed and, critically, what happens to your future contribution allowance.
Flexi-Access Drawdown
You move some or all of your pension into a drawdown arrangement. At that point, up to 25% of the amount moved can come out tax-free as a lump sum. The rest stays invested, and you draw taxable income from it whenever you want.1GOV.UK. Tax on Your Private Pension Contributions: Lump Sum Allowance You can take all the tax-free portion upfront, spread it out, or take none of it. The trade-off comes once you start drawing taxable income, which triggers the reduced contribution allowance described further down.
Uncrystallised Funds Pension Lump Sum
A UFPLS takes money straight from the untouched pot. Each withdrawal is split automatically: 25% tax-free and 75% taxed as income.3GOV.UK. Find Out the Rules About Individual Lump Sum Allowances You can take multiple UFPLS payments over time. Each one triggers tax on the 75% straight away, and the tax-free 25% still counts against your £268,275 cap.
Defined Benefit Pensions
Final salary schemes work differently because the benefit is a guaranteed annual income rather than a pot. To get a tax-free lump sum you give up a portion of the annual pension in exchange, using a commutation factor set by the scheme. Factors typically fall between £12 and £15 of lump sum per £1 of annual pension surrendered.
The 25% cap still applies, but it is worked out against a notional value: the scheme multiplies your annual pension by 20 and adds any lump sum entitlement. The £268,275 lifetime ceiling applies here too.1GOV.UK. Tax on Your Private Pension Contributions: Lump Sum Allowance Your scheme administrator can give you the exact figure.
Small Pots and Trivial Commutation
Two special routes sit outside the lump sum allowance entirely. Under the small pots rules, a pension worth £10,000 or less can be cashed in whole. From an untouched pension, 25% is tax-free and 75% is taxed. You can use the rule up to three times with personal pensions, and there is no numeric limit for occupational schemes as long as each pot is £10,000 or less.
Trivial commutation applies to defined benefit schemes where the combined value of all your pension benefits is £30,000 or less. The £30,000 test looks at everything together, which makes it harder to qualify than the small pots rule. Neither route counts against the £268,275 cap.
How the Other 75% Is Taxed
Anything you take above the tax-free portion is taxed as income at the standard rates:6GOV.UK. Income Tax Rates and Personal Allowances
- Personal allowance: first £12,570 tax-free
- Basic rate 20%: £12,571 to £50,270
- Higher rate 40%: £50,271 to £125,140
- Additional rate 45%: above £125,140
These bands cover all your income for the year, not just pension withdrawals. Your provider deducts tax before paying you, using the code HMRC issues.7GOV.UK. Tax When You Get a Pension: How Your Tax Is Paid Taking a large taxable sum in one tax year is one of the most common ways retirees push themselves into a higher band unnecessarily. Spreading the same withdrawal across two or three tax years can keep more of it inside basic rate or inside the personal allowance altogether.
The Trap for People Still Contributing
Once you flexibly access taxable income from a defined contribution pension, the amount you can pay into pensions each year drops from £60,000 to £10,000. This is the money purchase annual allowance.8GOV.UK. Money Purchase Annual Allowance: Trigger Events Contributions above £10,000 in a tax year then attract a tax charge.
Taking taxable drawdown income triggers it. So does a UFPLS. Taking only the 25% tax-free lump sum through drawdown, without drawing any taxable income from the remaining fund, does not. If you are still working and want to preserve your ability to keep building the pension, take the tax-free cash through drawdown and leave the invested portion alone until you actually need income from it.
Keeping Track Across Multiple Pensions
No single pension provider can see what you have withdrawn elsewhere. Your provider reports the tax-free amounts it pays you and issues a P60 at year end,7GOV.UK. Tax When You Get a Pension: How Your Tax Is Paid but tracking your running total against the £268,275 cap is your responsibility. Exceeding it accidentally means the excess gets taxed as income with no mechanism to reverse it. Keep every withdrawal statement in one place, especially if your pension savings are spread across several schemes built up over a long career.