Query about tax free lump sum when multiple pots are held

[MattS5]

So, I know this is a question for my financial advisor, but I'm not likely to see him, for another 3 months, and in reality it's a scenario that won't play out for another 15 months anyway.
But I was just pondering how it might work, and I know a few on here will have the knowledge.

For the benefit of the question, let's say there are 3 pension pots (these are hypothetical numbers to demonstrate the situation):

1. An employee workplace pension DC scheme with £300k
2. Another pot with £300k
3. Another pot with £100k

In early 2026 at age 55, I might wish to draw £125k as a tax free lump sum (assuming budget update tomorrow still allowing up to 25%) how would that work?

Is it simply a case of all 3 pots needing to be amalgamated and 18% crystalised (?) to get the drawdown required?

Thanks (and yes, I'm aware I have made a typo in the title but I can't seem to change it)

Edited by MattS5 on Tuesday 29th October 16:57

[TownIdiot]

Ignore my now edited post.
Misread as Defined Benefit.

You you can 25% or a portion thereof of each of them, or combine them into one pot in a SIPP as manage as one pot

[MattS5]

Deleted due to the edited post above

[MattS5]

TownIdiot said:

Ignore my now edited post.
Misread as Defined Benefit.

You you can 25% or a portion thereof of each of them, or combine them into one pot in a SIPP as manage as one pot

Ah, cool. (I'll delete my previous reply). Thanks for clarifying.

[TownIdiot]

To make my answer clearer you don't have to take the same % from each.

[MattS5]

TownIdiot said:

To make my answer clearer you don't have to take the same % from each.

Thats interesting, so would that be 25% maximum from any1 pot, or possibly 100% from 1 pot and 5% from another ?

[TownIdiot]

Max 25% from each pot

[OutInTheShed]

However much money you take from a SIPP fund as tax-free, 3x as much moves into a 'drawdown fund'
Unless you buy an annuity or something.

So if you take a 1/4 of a pot, the remaining 3/4 becomes a drawdown fund, which you can leave invested.
Anything you take from that drawdown fund, counts as taxable income.

[MattS5]

OutInTheShed said:

However much money you take from a SIPP fund as tax-free, 3x as much moves into a 'drawdown fund'
Unless you buy an annuity or something.

So if you take a 1/4 of a pot, the remaining 3/4 becomes a drawdown fund, which you can leave invested.
Anything you take from that drawdown fund, counts as taxable income.

Now this makes perfect sense, and I knew there must be a very easy way to explain how the part drawdown might work.

Thank you.

And to the previous poster, thank you as well, it's answered 1 question and then this answer above has ticked off another.

[timbo999]

Worth noting that if the uncrystalised funds (i.e. the bit that haven't gone into drawdown/you've taken tax free portion from) grow, then so does the amount of tax free cash you can take from them.

[Boringvolvodriver]

timbo999 said:

Worth noting that if the uncrystalised funds (i.e. the bit that haven't gone into drawdown/you've taken tax free portion from) grow, then so does the amount of tax free cash you can take from them.

Indeed - I took my tax free sums in 3 tranches over 5 years as I needed the funds and due to the growth seen, I ended up with more tax free than I would have done if I had drawn the lot when I retired.

[Truckosaurus]

timbo999 said:

Worth noting that if the uncrystalised funds (i.e. the bit that haven't gone into drawdown/you've taken tax free portion from) grow, then so does the amount of tax free cash you can take from them.

Indeed. I think this is the bit that a lot of people (including myself) don't realise (or think about) when they first look into the 'lump sum'.

I suspect the term 'lump sum' is an out-dated term now, as it implies you have to take it all out at once (like people did in the past when they were buying annuities rather than doing a drawdown) and we should be referring to it as something like 'tax free element'.

[Consigliere]

timbo999 said:

Worth noting that if the uncrystalised funds (i.e. the bit that haven't gone into drawdown/you've taken tax free portion from) grow, then so does the amount of tax free cash you can take from them.

i'm assuming this is still subject to the TFLS limits (approx 3260k ish?)

[Double Fault]

Consigliere said:

i'm assuming this is still subject to the TFLS limits (approx 3260k ish?)

Yes......c. £268k.

[alscar]

Double Fault said:

Consigliere said:

i'm assuming this is still subject to the TFLS limits (approx 3260k ish?)

Yes......c. £268k.

Unless previous fixed protection gained in which case could be as high as circa £460k.

[OutInTheShed]

timbo999 said:

Worth noting that if the uncrystalised funds (i.e. the bit that haven't gone into drawdown/you've taken tax free portion from) grow, then so does the amount of tax free cash you can take from them.

That is true, but that 75% of that growth becomes taxable as income when you draw it.

Whereas if you draw out the max tax free lump sum, you can have some growth untaxed via your capaital gains allowance.
Unfortunately, CGT allowance seems to have shrunk somewhat.

[thepeoplespal]

Are they not changing the age you can take a pension from 55 to 57 years?

I know it's a bit more complicated than that, but that could cause you a lot of hassle if you aren't aware of it.

[MattS5]

thepeoplespal said:

Are they not changing the age you can take a pension from 55 to 57 years?

I know it's a bit more complicated than that, but that could cause you a lot of hassle if you aren't aware of it.

That's from April 2028 it moves to 57.

I'm 55 in early 2026

[mikeiow]

MattS5 said:

So, I know this is a question for my financial advisor, but I'm not likely to see him, for another 3 months, and in reality it's a scenario that won't play out for another 15 months anyway.

Just on this point.
If you have a financial advisor, you are almost certainly paying him all year round.
Typically he is taking a % of your pot - maybe ½ to 1% p every year.
If you have this kind of question, drop him a line: make him earn that money