If my pension fund grows can I have more of the 25% tax-free lump sum?

Is the pension 25 per cent tax-free withdrawal allowance a fixed and once-only option?

For example, if my pension fund is £100,000 and I withdraw 25 per cent – £25,000 – then £75,000 remains.

If the fund, over time, then rises in value to, say, £120,000, can I take a further £5,000 tax-free to top up and maintain the 25 per cent tax-free allowance? Thanks for clarification.


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One option is to go for something called ‘flexi-access drawdown’. Under this arrangement you take your full tax free cash at the start.

The balance then goes into a drawdown account and all withdrawals are subject to income tax.

Even if the pot grows, you don’t qualify for any extra tax-free cash – all subsequent withdrawals are taxed.

So, in your example, if you move £100,000 out of a pension and take £25,000 in tax-free cash, the remaining £75,000 would go into a flexi-access drawdown account.

Even if that £75,000 grows over time, all the money you take out will be taxed, and you will only ever have got £25,000 in tax-free cash.

The alternative approach is to open a different sort of drawdown account.

The government’s ‘PensionWise’ website refers to this approach as ‘taking your cash in chunks’ but you will sometimes see this described by the horrible phrase ‘Uncrystallised Funds Pension Lump Sum’ – but don’t be put off by the title!

The basic idea here is that you would move your whole £100,000 across from your pension fund to your drawdown account.

Every withdrawal would then be 25 per cent tax free and 75 per cent taxable.

If the money in the fund grew over time, then you would get more tax-free cash overall than if you went for the first option and took all your tax-free cash out up front.

The PensionWise website covers these two options as well as other things you can do with a pension pot on this helpful page. 


Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy.

If you would like to ask Steve a question about pensions, please email him at [email protected]

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

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If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful. 

If you have a question about state pension top-ups, Steve has written a guide which you can find here.