How to take a small pension as one lump sum: the rules

If you have small pension savings, you do not have to spread them over years — sometimes it is simpler to take the lot as one payment. UK rules offer two routes for this: 'small pots' and trivial commutation. Both are available only from normal minimum pension age — currently 55 (57 from 6 April 2028).

Small pots up to £10,000

A single pension arrangement worth up to £10,000 can be taken in full as a small lump sum. From personal (non-workplace) pensions you can close no more than three such pots this way. Each payment fully extinguishes that pot. A useful plus: these sums do not use up your overall lump sum allowance.

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Trivial commutation up to £30,000

The second route is for people whose total pension rights are worth no more than £30,000 on a chosen 'nominated' date. Then even a defined benefit pension — one whose amount is set by the employer — can be taken as a lump sum. All such payments must be made within 12 months of the first. This route is aimed mainly at older workplace pensions.

How is it taxed?

The rule is the same: usually 25% of the payment is tax-free and the other 75% counts as income, taxed in the year you receive it. If the pension was already in payment, the whole amount can be taxable. A large lump sum can push you into a higher tax band that year, so spreading the payments can sometimes pay off.

What to watch for

Before cashing in, weigh the consequences: you lose the future pension income from that pot, and a large payment can affect eligibility for some means-tested benefits. Free, impartial guidance for the over-50s is available from Pension Wise (part of MoneyHelper). Check the exact conditions and the value of your rights with your pension administrator.

How to arrange it

The move is made by your pension provider or scheme administrator: they check whether you qualify and value your rights. Contact them, confirm which of the two routes applies to you, and ask them to explain the tax taken off. Often an 'emergency' tax code is applied to the payment and some of the money then has to be reclaimed from HMRC using separate forms.

If you have several pots in different places, find them first: the free government Pension Tracing Service helps locate forgotten accounts from former employers. With the full picture, it is easier to see whether you fall within the limits.

A lump sum is handy for genuinely small amounts when you understand the tax. For larger savings, the usual options — a regular pension or flexible drawdown — are almost always wiser.