# The 25% tax-free pension lump sum

Content updated: 2026-05-26

Canonical HTML: https://moneyguide.org.uk/pensions/tax-free-lump-sum/

## In short

Most UK pension savers can take up to 25% of each defined-contribution pension pot tax-free from age 55 (rising to 57 from April 2028). Since 6 April 2024 there is no Lifetime Allowance; instead a Lump Sum Allowance caps total tax-free lump sums at £268,275, and a Lump Sum and Death Benefit Allowance caps tax-free lump sums (including on death) at £1,073,100. Higher figures apply where Lifetime Allowance protections were registered.

The 2024 abolition of the Lifetime Allowance replaced the old single £1.0731m cap with two new lump-sum allowances. The income side of pension drawdown is now uncapped (subject to Income Tax), but tax-free lump sums are still limited.

## How the 25% rule works

For a DC pension worth £100,000, up to £25,000 can usually be drawn tax-free. The remaining £75,000 stays in 'flexi-access drawdown', is invested, and is taxed as income when drawn.

The 25% is per pension scheme, not per person. Combining multiple pots (consolidation) before drawing means the 25% applies to the merged value — which can be helpful for planning but is irreversible.


## The two new allowances (2024 onwards)

- Lump Sum Allowance (LSA) — £268,275 total cap on tax-free pension lump sums in a person's lifetime
- Lump Sum and Death Benefit Allowance (LSDBA) — £1,073,100 total cap on tax-free lump sums (including death-in-service lump sums and serious-ill-health lump sums)
- Above each cap the excess is taxed at the recipient's marginal rate
- Higher figures apply where the person registered a Lifetime Allowance protection (FP2016, IP2016, FP2014, etc.) before 6 April 2024

## Practical points

- Defined Benefit (final salary) schemes give a smaller tax-free 'commutation' lump sum, calculated by the scheme rules — usually well below 25% of the notional pot
- The 25% can be taken in stages — each tranche is called an 'uncrystallised funds pension lump sum' (UFPLS), which is 25% tax-free with 75% taxed as income
- Drawing any taxable pension income triggers the Money Purchase Annual Allowance (MPAA), capping further DC contributions at £10,000/year
- Annual Allowance for total pension input remains £60,000 in 2025/26, tapered for high earners

## Can I take all 25% tax-free in one go?

Yes — typically called a Pension Commencement Lump Sum (PCLS). The remaining 75% then sits in flexi-access drawdown or buys an annuity. This is irreversible and triggers the MPAA only when taxable income is drawn alongside.

## Will the 25% always be available?

Yes for now. The £268,275 LSA cap means very large savers cannot get 25% tax-free on every pound. Specialist advice is sensible for anyone close to that cap or holding an old LTA protection.

## What changes at age 57 in April 2028?

The Normal Minimum Pension Age rises from 55 to 57 from 6 April 2028. People who had a protected pension age before 4 November 2021 can keep age 55, but most people retiring after April 2028 will have to wait until 57 to draw a DC pension.

## Sources

- [GOV.UK — Tax on your private pension contributions and lump sums](https://www.gov.uk/tax-on-your-private-pension)
- [HMRC — Pensions Tax Manual PTM176000 (Lump Sum Allowance)](https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm176000)
- [MoneyHelper — Taking your pension as a lump sum](https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/taking-your-pension-as-a-lump-sum)

Information only — not regulated financial advice.