Small pension pots lump sums

A small pot lump sum lets you cash in a pension worth no more than £10,000 in one payment without triggering the money purchase annual allowance. You can take up to three from personal pensions and, subject to conditions, any number from workplace pensions. If the pot has not been accessed before, 25% is tax free and the rest is taxed as pension income, with basic rate tax deducted at source.

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What is a small pot lump sum?

Section 164(1)(f) of the Finance Act 2004 allows lump sums authorised by regulations. The Registered Pension Schemes (Authorised Payments) Regulations 2009 (SI 2009/1171) set out a family of “small lump sums” that can be paid without meeting the stricter conditions for a trivial commutation lump sum. HMRC’s Pensions Tax Manual covers them at PTM063700. Three regulations are relevant to most people:

regulation 11A, for schemes that are not occupational or public service schemes, which in practice means personal pensions, stakeholder pensions and SIPPs;
regulation 11, for occupational and public service schemes;
regulation 12, for larger occupational and public service schemes with 50 or more members.

The limit for each payment is £10,000 for payments made on or after 27 March 2014. The limit applies to the payment, not to your total pension savings, so you can use the small pots rule however large your other pensions are.

How many small pots can you take?

From personal pensions, regulation 11A allows a payment only if you have not previously received more than two payments under that regulation. That gives a lifetime maximum of three. PTM063700 explains that regulation 11A works at arrangement level, so the three payments can come from different schemes or from different arrangements within one scheme.

From workplace pensions there is no equivalent count. GOV.UK guidance on tax when you get a pension says you can usually take unlimited small pot lump sums from different workplace pensions, provided each one meets the conditions below.

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What conditions apply to personal pensions?

Under regulation 11A, as described in PTM063700:

you must have reached normal minimum pension age (55, rising to 57 from 6 April 2028) or meet the ill health condition or have a protected pension age;
the payment must not exceed £10,000;
it must extinguish your entitlement to benefits under that arrangement;
you must not already have received two earlier regulation 11A payments.

The £10,000 limit is tested on the amount actually paid. HMRC gives the example of a fund offered at £9,990 that grows to £10,010 before payment: it can no longer be paid under regulation 11A. Investment growth or contributions between your request and the payment date all count.

What conditions apply to workplace pensions?

Regulation 11 requires that you meet the same age test, that you are at arm’s length from the sponsoring employer, that the payment and the combined value of your rights in the paying scheme and any related scheme for the same employment do not exceed £10,000, that the payment extinguishes your entitlement under the paying scheme, and that there has been no transfer out from those schemes in the previous three years.

Regulation 12 is for schemes with 50 or more members. It drops the combined value test for related schemes but adds that no transfer in may have been made in the previous five years unless it was an “acceptable transfer”, such as one made when a defined benefit scheme was wound up, and that the scheme meets one of several structural conditions.

How is a small pot taxed?

PTM063700 explains that a small lump sum is taxed in the same way as a trivial commutation lump sum. If the pot represents uncrystallised rights, 25% is free of income tax and the rest is pension income under the Income Tax (Earnings and Pensions) Act 2003. If the pot has already been crystallised, for example a small drawdown fund or annuity, the whole payment is taxable. A mix is split so that only the uncrystallised part gets the 25%.

The scheme operates PAYE, and HMRC’s PAYE Manual at PAYE94055 confirms that pension providers deduct tax at the basic rate from small pots lump sums. If you are a higher rate taxpayer, the extra tax is collected through your tax code or Self Assessment. If too much tax has been taken, you can reclaim it during the tax year on form P53.

Small lump sums are not relevant benefit crystallisation events, so PTM063700 confirms they do not use up any of your lump sum allowance or lump sum and death benefit allowance.

Why does it not trigger the money purchase annual allowance?

PTM056530 lists payments that do not trigger the money purchase annual allowance (MPAA), and a small lump sum is one of them. That is the main reason to use this route. HMRC’s example in PTM056530 is Karen, who has £8,000 in a personal pension. Taken as a small pot, the payment is 25% tax free, £6,000 is taxable and the MPAA is not triggered. If Karen had already used her three personal pension small pots, she could still take the £8,000, but only as an uncrystallised funds pension lump sum, which has the same 25% tax free treatment but does trigger the MPAA.

Keeping the full annual allowance helps anyone still building pension savings, especially a business owner planning company contributions. The MPAA, £10,000 from 2023 to 2024 onwards, would otherwise cap those contributions. See pension contributions for business owners.

A worked example

Illustration only. Mark, 58, earns £70,000 and his employer pays £15,000 a year into his workplace pension. He also has two old personal pensions of £6,000 and £9,000 that he has never touched.

He takes both as small pots under regulation 11A. Of the £15,000 total, £3,750 is tax free and £11,250 is taxable, with basic rate tax deducted at source.
As a higher rate taxpayer he owes another 20% on the £11,250, collected through his tax code or return.
Neither payment triggers the MPAA, so his employer contributions remain tested against the normal annual allowance.
He has one regulation 11A small pot left for the future.

How does this differ from trivial commutation?

A trivial commutation lump sum is a separate rule. GOV.UK explains it lets you take the whole of certain pensions, usually defined benefit pensions, if all your private pensions are worth £30,000 or less, with valuations on the same day and all payments within 12 months. Unlike a small pot, it looks at your total pension wealth. HMRC guidance also says you need some lump sum allowance remaining to take a trivial commutation lump sum. Small pots and trivial commutation can both be used by the same person.

What mistakes should you avoid?

Letting a pot grow over £10,000 between the request and the payment.
Transferring several pots together first, creating a single pot above £10,000 that can no longer use the rule.
Splitting a large arrangement into new ones to create small pots without checking whether you hold enhanced or fixed protection; PTM063700 warns this can have consequences.
Forgetting that basic rate deduction is not the final liability for higher rate taxpayers.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.