Pension access is not all-or-nothing. Since the pension freedoms of 2015, defined contribution pension savers have had the flexibility to take money out in stages — taking a lump sum (or income) while leaving the bulk of the pot invested and growing. Understanding the options helps you plan withdrawals around your income needs and tax position.
The Main Options for Partial Access
| Option | How it works | Tax-free element | MPAA triggered? |
|---|---|---|---|
| Phased flexi-access drawdown | Move a portion into drawdown; take 25% of that portion tax-free | 25% of the designated amount | Only when income is drawn from drawdown fund |
| UFPLS | Take chunks; each is 25% tax-free / 75% taxable | 25% of each withdrawal | Yes — at first UFPLS |
| Annuity (partial) | Buy annuity with part of pot; leave rest invested | 25% of annuity purchase amount | No (annuity does not trigger MPAA) |
| Take full tax-free cash only | Designate whole pot into drawdown; take 25% tax-free; leave 75% invested but undrawn | 25% of whole pot | No — if income not yet drawn |
Phased Drawdown — The Most Flexible Approach
Phased drawdown allows you to move portions of your pension into drawdown in tranches, rather than all at once. Each tranche gives you 25% tax-free and keeps the remaining 75% in drawdown for future income withdrawals.
Why phase it?
- You access only the tax-free cash now and delay taxable income to a later tax year
- The uncrystallised portion remains invested and can continue to grow
- You avoid pushing your taxable income into a higher bracket prematurely
- MPAA is not triggered until you actually draw taxable income from a drawdown fund
Worked example:
- Pension pot: £200,000
- Year 1: Designate £40,000 into drawdown; take £10,000 tax-free; leave £30,000 in drawdown fund (not yet withdrawn)
- Year 2: Draw £15,000 from the drawdown fund (£30,000 minus previous balance) — this triggers the MPAA. Take another £20,000 from uncrystallised pot via a second UFPLS (£5,000 tax-free, £15,000 taxable)
- The remaining £140,000 of the original pot stays uncrystallised
UFPLS — Simpler but Less Flexible
Uncrystallised Fund Pension Lump Sums (UFPLS) are simpler to execute: each withdrawal comes from the uncrystallised pot and is automatically 25% tax-free and 75% taxable. You do not need to formally designate funds into drawdown.
UFPLS triggers the MPAA on the first payment — meaning future DC pension contributions are capped at £10,000 per year. If you plan to continue contributing significantly to your pension while making withdrawals, drawdown may be preferable (though the MPAA trigger timing depends on whether you draw taxable income, not just designate into drawdown).
Tax-Free Cash in DB Schemes
Defined benefit pension holders access tax-free cash through commutation at retirement. You accept a lower annual pension in exchange for a tax-free lump sum. The commutation factor (the rate at which annual income converts to lump sum) varies by scheme but is typically between 12:1 and 20:1.
Example: Scheme offers commutation at 15:1. You give up £1,000/year of pension income to receive £15,000 tax-free lump sum. Your pension reduces permanently.
The maximum tax-free cash is the lower of 25% of the capital value of your DB pension rights (using the 20:1 factor) and the lump sum allowance of £268,275.