Published and sources checked · UK tax year 2026/27
The allowance applies across pensions
For 2026/27, the standard lump sum allowance is £268,275. It is not a fresh allowance for each pension or each tax year. Earlier tax-free benefits can reduce what remains, while valid protections can change an individual's entitlement. Benefits taken before 6 April 2024 can require transitional calculations.
Ask providers to confirm your entitlement and the records they need before a payment. A headline pot value multiplied by 25% does not resolve previous withdrawals, protected rights or every scheme-specific rule.
Upfront cash and phased access differ
With a defined contribution pension, one approach is to take a pension commencement lump sum and move the associated balance into drawdown or use it to buy an annuity. Income taken from the drawdown balance is normally taxable. Moving only part of an untouched pension into drawdown can allow tax-free cash to be taken in stages.
Another route is taking eligible lump sums directly from untouched pension funds, often called UFPLS. Usually 25% of each qualifying payment is tax-free within the available allowances, with the rest taxable. Providers do not necessarily offer every method. Defined benefit pension lump sums follow the scheme's own benefit rules and can involve exchanging some annual pension.
A simple illustration of the difference
Illustrative, not advice: take a £120,000 untouched defined contribution pot with standard entitlement and enough unused allowance. Taking £30,000 tax-free upfront leaves £90,000 in drawdown; subsequent withdrawals from that balance are normally taxable. Taking a £12,000 qualifying UFPLS instead would usually mean £3,000 tax-free and £9,000 taxable, leaving £108,000 before charges or investment changes.
These transactions release different amounts of cash. They cannot be compared merely by looking at the tax on one year's income. Our pension withdrawal tax calculator explains the specific comparison it makes and the factors it excludes.
Check the consequences beyond the tax-free payment
Taking taxable flexible pension income can trigger the money purchase annual allowance, restricting future tax-relieved defined contribution saving. Taking only eligible tax-free cash while leaving the taxable part invested generally does not trigger it. Other contribution and pension recycling rules can still apply.
Money withdrawn may affect means-tested benefits. Cash held outside the pension also has its own tax and inflation considerations. Keep a record of amounts and dates, and distinguish the amount received from the amount that was exempt from tax.
Common questions
Do I get £268,275 tax-free from every pension?
No. The standard lump sum allowance is shared across your pensions. The amount actually available also depends on eligible benefits, previous use and any protections.
Does 25% of every drawdown payment stay tax-free?
Not if the associated tax-free cash has already been taken. Distinguish taxable drawdown income from phased access to untouched funds or qualifying UFPLS payments.
Sources
Checked 7 October 2026. The linked sources are the authority for rules and eligibility.