This guide is for financial advisers only. It must not be distributed to, or relied on by, customers. The information on this page is based on our understanding of legislation as at 6 April 2024.

An uncrystallised funds pension lump sum (UFPLS) is an authorised lump sum payment made from uncrystallised money purchase funds – there is a 25% tax-free element with the balance taxed at the member’s marginal rate of income tax.

If pension scheme rules allow, members can take their entire money purchase pot as an UFPLS in one go, or take a series of smaller UFPLS payments, each of which will have a 25% tax-free element.

It’s important to note that the 25% tax-free element is not a Pension Commencement Lump Sum (PCLS). A PCLS payment can only be made where the member has an ‘actual entitlement’ to a relevant pension benefit under the same scheme. An UFPLS is a lump sum payment and can’t be paid as a relevant pension benefit. (Note – a relevant pension benefit includes drawdown, lifetime annuity and scheme pension).

Once an UFPLS has been paid, there’s no way to undo this – there are no cancellation rights for an UFPLS payment.

To be an UFPLS:

  • The lump sum must be paid from uncrystallised funds in a money purchase arrangement.
  • The member must be at least age 55 (or at least have reached their protected pension age, if they have one under the arrangement) or meet the conditions to take benefits early under the ill-health rules.

A member can’t have an UFPLS:

  • If they have enhanced protection (with or without dormant primary protection) or primary protection together with registered tax-free cash of more than £375,000, immediately before the lump sum is paid.
  • From an arrangement that contains a disqualifying pension credit (that is a pension credit on divorce that originates from previously crystallised funds).
  • If the member has a lifetime allowance enhancement factor on their pension benefits and the available lump sum would be less than 25% of the proposed amount of the UFPLS. A member can have an enhancement factor where funds originated from a pension share on divorce, from funds built up during a period of non-UK residence or from a transfer in from a recognised overseas pension scheme.

The last two conditions prevent members from accessing a tax-free payment under an UFPLS that is greater than that which would have been allowed as a pension commencement lump sum (PCLS).

It’s worth noting that an UFPLS is unlikely to be attractive to people who have ordinary (also known as ‘scheme-specific’) tax-free cash protection, as the maximum tax-free element that can be paid from an UFPLS is 25% of the UFPLS fund.

An UFPLS is a relevant lump sum and is also a relevant benefit crystallisation event (RBCE). Payment of an UFPLS is tested against both the lump sum allowance and lump sum and death benefit allowance and taxed as follows:

  • 25% is paid tax-free unless the first 25% exceeds an individual's remaining lump sum allowance, or lump sum and death benefit allowance, in which case, the amount that exceeds either allowance is taxed at the member's marginal rate
  • 75% is taxed as pension income in the same way as a pension paid under a registered pension scheme

Example of how an UFPLS is taxed in practice

Hector is aged 62 and has a fund of £80,000 and wishes to take the full fund as a lump sum. Assuming he has his full LSA and LSDBA, he will get £20,000 tax-free, with £60,000 taxed at his marginal rate. Assuming this is his only income, then he will fall into the higher rate of tax and get £68,568 in his hand after tax*.

£20,000 tax-free + £60,000 taxed

Tax = (£12,570 x 0%) + (£37,700 x 20%) + (£9,730 x 40%) = £11,432

£60,000 - £11,432 = £48,568

£48,568 + £20,000 (the tax-free bit) = £68,568

*Tax calculation uses the UK tax rates and allowances which are due to apply from 2021/22 up to and including the 2025/26 tax year. The results for a Scottish taxpayer will be slightly different due to the different tax rates and bands from the rest of the UK and Wales.

However, it’s important to note that if this is the first UFPLS that Hector is taking, it’s likely that the provider won’t hold an up-to-date tax code and the UFPLS will be taxed using the emergency tax code. Using the emergency tax code means the UFPLS is effectively treated as if it will continue to be paid each month rather than as a one-off payment. The provider will therefore apply 1/12th of the personal allowance (£12,570 in 2023/24) to the payment and will assess the remaining payment against 1/12th of each of the income tax bands currently in force.

So, using an emergency tax code, the tax deducted will actually be as follows:

£20,000 tax-free + £60,000 taxed

Tax = (£1,047.50 x 0%) + (£3,141.67 x 20%) + (£7,286.67 x 40%) + (£48,524.16 x 45%) = £25,378.88

£60,000 - £25,378.87 = £34,621.13

£34,621.13 + £20,000 (the tax-free bit) = £54,621.13 in his hand

Hector will have 2 options to reclaim the overpaid tax (as a result of using the emergency tax code). He can wait until HMRC conducts the end of tax year reconciliation where they will discover the overpayment of tax and refund the overpaid amount (or possibly offset it against any outstanding underpayment of tax), or he can reclaim the overpaid tax from HMRC during the tax year using the appropriate claim form. The second option is likely to be more popular for most individuals.

Payment of an UFPLS is a relevant BCE so reduces an individual’s LSA and LSDBA by the amount of the relevant lump sum paid. An RBCE statement will be issued following each payment of an UFPLS to tell individuals how much of their LSA and LSDBA the payment has used up – even where the amount of the LSA or LSDBA used up in nil (i.e. the payment is fully taxable).

The first time a member accesses their pension benefits flexibly, which will include taking an UFPLS, they will trigger the MPAA. This will need to be considered carefully when deciding whether or not to take benefits as an UFPLS.  You can find out more about the MPAA rules in our MPAA article.

There are a number of differences. The table below highlights some of the features of both UFPLS and small pot payments:



Small pot




Triggers the MPAA?



Maximum amount that can be paid as a lump sum 

No limit on total amount paid, however the tax-free portion is limited (see Tax-free element section below)

£10,000 per small pot

Number of times such a payment can be made?

No limit - although scheme rules may limit the number they are willing to pay in a year

Maximum of 3 small pots from non-occupational pension schemes

Tax-free element

25% unless the first 25% exceeds the 'permitted maximum'. 

The permitted maximum is the lower of:

  • the member's available lump sum allowance
  • the member's available lump sum and death benefit allowance

25% if taken from uncrystallised funds

Nil if taken from crystallised funds

Initial tax position*

Marginal rate, if we have a tax code, otherwise emergency rate tax is deducted.

Marginal rate

*While the overall tax position for UFPLS and small pots results in members paying marginal rate tax on the taxable part of the lump sum, the methods for deducting tax in practice are different. When an UFPLS is paid, 25% is normally tax free and the balance is taxed using an emergency code (unless the provider has a tax code for the member). Small pots from uncrystallised funds are paid 25% tax free with the balance being taxed at 20%. The end result is the same once any over/underpayment of tax is resolved.

You can find more information on UFPLS payments in HMRC’s Pensions Tax Manual at: