Should I draw down max cash from personal pensions pots to utilise personal allowance this tax year?

AspiringPensioner

Hi all, apologies in advance for long post/explanation! Hoping for some feedback and advice about my personal pension pots and whether it would be a good idea to draw down as much as possible over the next couple of years. This area is not something that I’ve paid much attention to up to now, because I also have several deferred DB pensions from previous employers, which become payable in about two years’ time. These will provide me with a definitive regular income, even if fairly modest. According to state pension forecast, I will also receive the full state pension from age 67. I’m in my late 50s now.

I started freelance work over a decade ago and as my earnings were very low, I didn’t pay into a pension for many years (apart from a short term part time job during which I contributed to an LGPS scheme for a year or so). About 5 years ago I started making modest monthly contributions to a robo-investing SIPP (and continue to do so). In 2022 I transferred the LGPS contributions into a different SIPP, and I also made a one-off contribution to that one at the end of the 2024-25 tax year. I also have a personal pension pot with a third company dating from contributions made many years ago, and another originating from an AVC scheme with a different employer (one of those that I also have a DB pension with).

All the above has left me with four separate personal pension pots, totalling around £36,000 as at Feb 2026 (none of them over £10k).

I’m winding down towards retirement and therefore earned very little in the 2025-26 tax year, so I’m wondering whether it would be sensible to take some of the above as drawdown before the start of April 2026, (if possible within providers' timescales) perhaps by cashing in the whole of one fund, or part of more than one fund? My net business income is going to be low, and there is therefore a gap between my income and my personal allowance threshold.

Does that mean that I could draw down (let’s say) £12,000 in total - 25% of this (£3,000) is denoted as the tax free element. Normally the remaining 75% (£9,000 in this example) would be subject to income tax, but I wouldn’t actually pay any if total income still came in under the £12,570 PA. To push the example further, does it still hold if I drew down £14,000 (which would have to come from two different funds)? The 25% TFLS would be £3,500 and the remaining usually taxable 75% would be £9,500. Have I understood the facts correctly around the tax free element and how this works?

And is it a good idea more generally, even if it is tax efficient in the short term? Once my first couple of DB pensions kick in, in tax year 2028-29 that income will pretty much take me up to the income tax threshold/use up all of my PA. Intuitively it seems a good idea to utilise the next two tax years before then, to take as much as possible out of these personal funds, effectively tax free.

I guess the alternative is to leave the pension funds where they are, maybe consolidate them into one provider at some point and then look at buying an annuity later on? From my very limited knowledge of those and my reading here, it seems like annuity rates have been at historic highs in the last year or two, so is this something that I should look at doing instead of drawing down these funds as cash? Any advice or input gratefully received, thanks so much!

Dazed_and_C0nfused

Using your Personal Allowance is generally seen as a good idea as once the tax year ends you've lost it.

If you use the "small pots" rules then you can also avoid triggering MPAA.

Unless you say what your expected profit is going to be it's impossible to know how much you can take.

One thing you should get clear in your own mind though is the difference between a tax free lump sum (TFLS) and taxable pension income which might result in no tax liability. The latter isn't "tax free".

Are you eligible for Marriage Allowance?

AspiringPensioner

https://forums.moneysavingexpert.com/discussion/comment/81893104#Comment_81893104

Thanks D & C.

I will check out the "small pots" rule although on first glance just now, triggering MPAA would not be any kind of issue for me, if I've grasped the main point correctly. Still having an allowance of £10k pa to continue making pension contributions would be more than ample.

I'm trying to be cautious about how much personal info to share on a public forum, hence the use of hypotheticals in describing my likely income this year.

I do understand the difference between tax free and "taxable pension which might result in no tax liability", I thought I'd put enough qualifiers in there to try and explain, but you're right to remind me to be exact. 😊