If you have a defined contribution pension, we can pay this to you as a one-off lump sum. This saves you from having to use some or all of your pot to provide an income. Instead, you can receive a cash lump sum up front called an Uncrystallised Funds Pension Lump Sum (UFPLS).

When you take a defined contribution pension pot, you can usually take a quarter of it tax-free at the start. You can then choose to use the rest to:

  • provide a guaranteed income for life, known as an “annuity”
  • receive regular or one-off payments, known as “drawdown”

Instead of deciding what to do with the rest, you can take your pot in one go as cash. You will need to plan how to use your lump sum, so you do not run out of money during retirement.

Here is an example for Joe. This only applies to defined contribution pensions. You will have a defined contribution pension with us if you are a member of:

  • Pension Builder 2014 (Church Workers Pension Fund)
  • Defined contribution scheme (Church Administrators Pension Fund)

Your questions, answered

What are the rules?

We can pay your defined contributions pot to you as cash if:

  • you are 55 or over, or retiring due to health problems,
  • you are not over your Lifetime Allowance.
  • you do not have Lifetime Allowance protections

How is it taxed?

A quarter of your cash sum is tax-free, and the rest is taxed as income. As we do not know your tax code, we use a basic rate tax code (BR) to work out your income tax. This may mean you pay too little or too much tax. If you are a basic-rate taxpayer, or you do not pay tax, then you could end up paying too much tax. If you are a higher-rate taxpayer, you might not have paid enough tax as it will only be taxed at the basic rate of 20%. If you have paid too much tax, you can claim tax back. You can find out how to do this at gov.uk/claim-tax-refund/overview.

If you have not paid enough tax you can pay more through your self-assessment tax return. Fill in the ‘Pension savings tax charges’ section. It is your responsibility to do this. Fill out a return at gov.uk/self-assessment-tax-returns.

  • Joe’s defined contribution pension is worth £80,000
  • He is also earning £20,000 from employment this tax year
  • Joe takes 25% of his pension tax-free, so he receives £20,000 untaxed
  • He has £60,000 left, which he takes as a taxed lump sum
  • His earnings plus his taxed lump sum mean his income for this tax year is £80,000
  • This pushes Joe into the 40% tax bracket, and he faces a large tax bill

Does it affect my annual allowance?

An UFPLS counts as flexibly accessing your pension so you will trigger the Money Purchase Annual Allowance (MPAA). This is designed to stop you taking a large amount of money out of a pension tax-free and putting it back into another pension and receiving more tax relief.

Technical information
Uncrystallised Funds Pension Lump Sums
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