Taking a small pot lump sum

How it works

Small pot lump sums are designed to help people with smaller pension pots get better value from their pension savings. Instead of having to buy a low-value annuity which would only provide a small income, you can take up to £30,000 in lump sum payments (three payments of £10,000).

With each lump sum payment you get 25% tax-free, and the remaining 75% is taxed as income. However, if the cash lump sum is being paid from a pension in payment, for example drawdown pension, there is no tax-free element and the full lump sum will be taxed using the PAYE code already in operation for you.  We'll follow the emergency tax basis if we don't hold your PAYE code, for example, if we're making your first payment. As the cash lump sum payment is classed as income, taking this option may put you in a higher tax bracket.

If you're still contributing to a pension, taking a small pot lump sum won't, unlike some other options, change the amount you can contribute before incurring tax charges.

Small pot lump sums don't provide an ongoing income and don't count towards your lump sum allowance and lump sum and death benefit allowance.

Things you should think about before taking a small pot lump sum

• If you're not sure if taking a small pot lump sum is right for you, you can use Pension Wise, a free and impartial government service provided by MoneyHelper that offers guidance about your retirement options. The Pension Wise service is available online, by phone 0800 138 3944 or by face to face appointment. If you'd like advice tailored to your individual circumstances, you should speak to a financial adviser. Please note they will charge you for their advice. If you don't have a financial adviser, you can visit MoneyHelper to find the right one for you.
• When and how you take your pension benefits.
• Whether you have other income for your retirement.
• If taking a lump sum will put you into a higher income tax bracket.
• Be aware that it won't provide a regular income for any dependants after you die.
• You must have reached the normal pension age, currently 55 but changing to 57 from 2028 (or your protected pension age, if you have one) or the ill-health condition is met.
• To be eligible to request a withdrawal, you need to have had a quote in the last 12 months. You can request a quote using our online form, selecting the retirement quote option, or you can contact us.
• We need to confirm your identity when you take your pension benefits – we can’t process your request without doing this. We’ll try to complete our identity checks electronically. Where this isn’t possible, we’ll contact you and ask you to send us certified copies of two identification documents. This may increase the time the request will take. For more information on the types of documents we may need, please visit our certified documents FAQ.
• Once you send your request, we need to move your funds into cash and then transfer by BACS to your chosen bank account. This process can take up to 14 working days.
• This information is based on our understanding of current taxation law and HMRC practice, which may change. The tax treatment will depend on your individual circumstances and may be subject to change.