Quick answer: Yes — from 55 (57 from 2028) you can take a whole DC pension as one lump sum: 25% tax-free, 75% taxed as income that year. But for most pots this is a costly mistake — a large taxable lump pushes you into higher-rate tax. Spreading withdrawals over several tax years usually saves thousands.
The tax hit on £100k taken at once (on £30k salary)
| Slice | Rate |
|---|---|
| £25,000 (tax-free 25%) | 0% |
| Part of the 75% in basic rate | 20% |
| Most of it in higher rate | 40% |
Net result: roughly £70,000 of the £100,000 reaches you; £30,000 goes in tax.
Lump sum vs phased
Taking £20,000/year via UFPLS (25% tax-free, 75% taxable) once your salary stops can cut a £30k tax bill to ~£8k — for the same money. Phasing almost always wins.
Watch-outs
- Triggers the £10,000 MPAA
- Counts as capital for means-tested benefits (Pension Credit, Universal Credit)
- Small pots under £10k have special rules that avoid the MPAA
Read next: Lump sum tax calculator.
Frequently asked questions
Yes — from age 55 (57 from April 2028), you can take the whole DC pension pot in one go. The first 25% is tax-free; the remaining 75% is taxed at your marginal income tax rate.
For most people, taking a large lump sum pushes you into higher (40%) or additional (45%) rate tax. A £100,000 pot fully encashed by a basic-rate taxpayer would lose ~£15,000 to tax. By a higher-rate taxpayer, ~£30,000.
Rarely. The tax penalty is huge for medium and large pots. Spreading withdrawals over multiple tax years usually saves thousands. Taking it all at once only makes sense for very small pots (under £10k) or specific one-off needs.
Yes — the Lump Sum Allowance is £268,275 (2026/27). Most people will never reach it. The allowance covers the 25% tax-free portion of all your pensions combined.
Yes — capital from a pension lump sum can affect means-tested benefits like Pension Credit, Universal Credit, and Council Tax Reduction. Plan carefully if you're claiming or planning to claim benefits.
Yes — taking any taxable income from your DC pension triggers the £10,000 Money Purchase Annual Allowance, restricting future contributions. If you're still working and contributing, this is a major drawback.