Taking your 25% tax-free cash: all at once or in stages

Updated 7 October 2026. Figures checked against official sources on 7 October 2026.

You can usually take up to a quarter of each pension tax-free, up to £268,275 in total. There are two main ways: take it all at once, or take it bit by bit, with a quarter of every withdrawal tax-free. The calculator compares them over a whole retirement.

Worked example: someone retiring at 60 with £410,000, taking home £26,000 a year in today's money.

Worked example

From 87, your income falls short of the £26,000 a year you want.

Age now: 59
Retire at: 60
Pots: £410,000
Take-home wanted: £26,000 a year
Plan until: 95

Opens the calculator with this example. Any figures you've saved there are kept, and you can bring them back.

The two ways compared

Bit by bit. Each withdrawal comes straight from the pension, a quarter tax-free and three quarters taxed as income. This is called an uncrystallised funds pension lump sum, or UFPLS. In this example the money falls short from 87, with £65,874 of income tax over retirement.

All at once. The full tax-free lump sum, here £102,049 in today's money, comes out at 60 and goes into cash savings. Everything taken from the pension after that is fully taxed. In this example the money falls short from 84, with £69,731 of income tax.

Change the "25% tax-free cash" setting on the pension in the calculator to switch between the two.

Why they come out differently here

The lump sum held as cash earns interest, and interest outside an ISA is taxed as savings income. Left in the pension, the same money keeps growing without tax.
Taken bit by bit, the tax-free quarter of each withdrawal grows along with the pot.
Spent or given away, a lump sum is no longer in the pension at all, which matters for inheritance tax from April 2027.

Your own answer depends on what you'd do with a lump sum, your other income and your tax band, so the calculator lets you try both.

Things that apply either way

Limit. The total tax-free cash across all your pensions is usually capped at £268,275.
Paying in later. Taking only the tax-free cash doesn't cut what you can pay into pensions. A UFPLS withdrawal includes taxable money, so it usually does: pension payments are then limited to £10,000 a year.
Scheme rules. Not every pension offers both ways. Your provider can confirm the options.
Phased drawdown is a mix: you move part of the pension into drawdown at a time, taking a quarter of each part tax-free.

Questions people ask

Can you take your 25% tax-free lump sum in stages?

Often, yes. Many pensions let you take a quarter of each withdrawal tax-free (UFPLS) or move the pension into drawdown in parts, each with its own tax-free cash. Not every scheme offers this.

Is UFPLS the same as tax-free cash?

No. An uncrystallised funds pension lump sum is a withdrawal straight from your pension where 25% is tax-free and 75% is taxed as income. Tax-free cash taken on its own is only the 25%, with the rest moved into drawdown or used to buy an annuity.

Does taking only tax-free cash trigger the money purchase annual allowance?

No. Taking only the tax-free cash doesn't. Taking taxable money, including a UFPLS withdrawal, usually limits pension payments with tax relief to £10,000 a year.

What is the maximum tax-free lump sum I can take?

Usually 25% of each pension, with a total of £268,275 across all your pensions.

Can I take 25% tax-free from more than one pension?

Yes. Each pension usually has its own 25% tax-free amount, but the £268,275 limit applies across all of them.

Which comes out better in this example?

Taken bit by bit the money falls short from 87 with £65,874 of income tax. Taken all at once into cash it falls short from 84 with £69,731. Different figures can give a different result.

Sources

Rates and rules were checked against these on 7 October 2026. Worked-example figures come from the calculator, using 2026/27 tax rules.