Want to know more?
Let’s have a chat
Last reviewed: August 2026
Taking money from a pension for the first time is one of the few financial decisions that is genuinely difficult to undo. This explains what happens when you do, and the three things that most often catch people out.
You can normally access a personal pension from age 55. That minimum age rises to 57 on 6 April 2028, so anyone born after early April 1973 will have to wait longer than they may be expecting.
You can usually take 25% of your pension tax free. The remaining 75% is taxed as income when you take it.
There is a cap that many people are unaware of. Since the lifetime allowance was abolished in April 2024, the total tax-free cash you can take across all your pensions in your lifetime is limited by the lump sum allowance, currently £268,275. That figure is frozen, and it equates to 25% of a pot of around £1.07 million.
For most people this makes no difference, 25% of the actual pot is simply available. It matters if your total pension savings are approaching or above £1 million, or if you hold one of the older protections, in which case your allowance may be higher and is worth checking before you take anything.
You take 25% of the pot tax free, and the remaining 75% must then be either taken as cash, used to buy an annuity, or moved into flexi-access drawdown. Any income from that 75% is taxable.
Example. A £60,000 pot. You take £15,000 tax free and use the remaining £45,000 to buy an annuity paying £2,000 a year. That £2,000 is taxable income.
You leave the pot untouched and take lump sums as you need them. 25% of each withdrawal is tax free and the rest is taxable.
Example. A £60,000 pot, taking £1,000 a month. £250 of each payment is tax free; £750 is taxable.
This second route often works better, because it lets you control how much taxable income you take in any one tax year.
1. Emergency tax on the first payment. HMRC usually taxes a first pension withdrawal on an emergency basis, which frequently means far too much tax is deducted. You can claim it back, but it will not happen automatically. We have written separately about how to reclaim it.
2. Taking taxable income restricts future contributions. Once you take anything beyond your tax-free cash from a defined contribution pension, the money purchase annual allowance is triggered and the amount you can pay into pensions each year falls to £10,000. If you are still working and contributing, this can be an expensive surprise. Taking only tax-free cash does not trigger it.
3. A large withdrawal can push you into a higher tax band. Pension income stacks on top of everything else, salary, State Pension, rental income, and taxable savings and investment income. Taking a big lump in one tax year rather than spreading it across two can cost you a great deal in avoidable tax.
Your taxable income for a year may include money from your pension, the State Pension, earnings from employment or self-employment, rental income, savings and investment income, and any taxable benefits.
If you leave your pension untouched and take nothing, you pay no income tax on it.
From 6 April 2027, most unused pension funds count towards your estate for inheritance tax. For many people this reverses the conventional order of what to spend first, the pension used to be the pot to preserve, and for a good number of families it no longer is.
Read our explanation of the April 2027 changes
Figures correct for the 2026/27 tax year. This article is for general information and does not constitute personal advice. Tax treatment depends on your individual circumstances and may be subject to change in future. The value of investments can fall as well as rise and you may get back less than you invested.
The first conversation is free and there is no obligation. Book with whichever adviser is closest to you, or whoever suits. We work with clients across the UK.
Lee Barton (Leicester) | Ian Laker (Tamworth) | Chris Wood (Coventry)
Bosworth Wealth Management is authorised and regulated by the Financial Conduct Authority. FCA firm reference number 805232.
Our advisers are based in Leicester, Tamworth, Coventry and King’s Lynn, and we work with clients across the UK.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change in future.