Pension crystallisation and tax-free cash explained
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Quick answer: Crystallisation is moving part or all of your pension into a drawdown or annuity arrangement. You can usually take 25% tax-free; the rest is taxed when withdrawn. Phased crystallisation spreads tax-free cash across years.
Before taking income from a defined contribution pension, you crystallise part of the pot. How you crystallise — all at once or in tranches — affects tax, the Money Purchase Annual Allowance and how long your investments stay in the tax wrapper.
Lump sum vs phased
Taking all tax-free cash at once is simple but may waste personal allowance in later years if you do not need the cash immediately.
Phased crystallisation — moving slices of the pot over several years — spreads tax-free cash and taxable withdrawals across tax bands.
UFPLS
Uncrystallised Funds Pension Lump Sum (UFPLS) takes ad hoc amounts without moving into a formal drawdown plan. Each withdrawal is 25% tax-free and 75% taxable.
UFPLS suits small one-off needs but can trigger MPAA once taxable amounts are taken flexibly.
What stays uncrystallised
You do not have to crystallise your entire pot at retirement. Leaving funds uncrystallised keeps them growing tax-free and can pass more efficiently to beneficiaries on death before 75.
April 2027 IHT changes may bring unused pensions into estates — see our pension IHT guide.
Common questions
How much tax-free cash can I take?
Broadly 25% of your pension pot subject to the lump sum allowance — check gov.uk if you have lifetime allowance protection or very large pots.
Can I take tax-free cash without starting drawdown?
Yes — you can take tax-free cash and leave the rest uncrystallised, or use UFPLS for partial access.
Does crystallisation affect State Pension?
No. State Pension is separate from private pension crystallisation.