Since April 2015, “pension freedoms” have given people with a defined contribution pension far more control over how and when they access it. That flexibility is genuinely valuable – but it also means the responsibility for getting it right, and avoiding some well-known traps, sits with you, which is exactly where our Pension & Retirement Planning service comes in. Here’s where things stand for 2026/27, including a change worth knowing about well in advance.
What pension freedoms actually give you
From your minimum pension age, you can normally choose to:
- leave your pension invested and untouched,
- move it into flexi-access drawdown, taking a tax-free lump sum and/or a flexible income,
- take lump sums as and when you like (uncrystallised funds pension lump sums, or UFPLS) – 25% of each withdrawal is tax-free, the rest taxed as income,
- buy an annuity for a guaranteed income for life, or
- take the whole pot as cash in one go – rarely advisable, given the tax consequences (see below).
The minimum pension age is changing
The minimum age at which most people can access a defined contribution pension is currently 55. This is rising to 57 from 6 April 2028. If you were born between 6 April 1971 and 5 April 1973, you’ll reach 55 before the change but won’t yet be 57 when it takes effect. The rules for this group can be complex, particularly if you’ve already accessed part of your pension, so it’s worth taking advice well before April 2028. Some pension schemes also offer a “protected pension age,” allowing earlier access even after the rule changes, where properly documented. If this applies to you, it’s worth planning now, well before the change takes effect.
Tax-free cash
You can usually take up to 25% of your pension tax-free, subject to a Lump Sum Allowance of £268,275 across all your pensions combined – this replaced the old “lifetime allowance” system in April 2024. Anything taken above your tax-free entitlement is taxed as income in the year you take it, which is where large, unplanned withdrawals can easily push you into a higher tax band than expected.
The Money Purchase Annual Allowance trap
Once you flexibly access taxable income from a defined contribution pension – through drawdown income or a UFPLS, for example – the amount that can be contributed to defined contribution pensions without an annual allowance tax charge drops from £60,000 to £10,000 (the Money Purchase Annual Allowance, or MPAA). This catches people out particularly if they access a small pot early while still working and contributing to a larger one – it’s exactly the kind of detail our Tax Planning service is designed to catch, worth checking before taking any income, not after.
What happens to your pension when you die
Until 6 April 2027, most pensions sit outside your estate for inheritance tax. From that date, unused pension funds and most pension death benefits will count towards your estate for inheritance tax purposes (death-in-service benefits paid by an employer are excluded). Income tax still depends on your age at death: if you die before 75, beneficiaries can usually receive benefits free of income tax, subject to the relevant allowances (including the Lump Sum and Death Benefit Allowance of £1,073,100) and, for most lump sums, payment being made within two years of the scheme becoming aware of the death; if you die at 75 or older, they generally pay income tax at their own marginal rate when they draw the money. From April 2027, some pensions could therefore face both inheritance tax and income tax. This makes keeping your beneficiary nominations up to date particularly important, although a nomination will not by itself keep the pension outside your estate for inheritance tax purposes from April 2027.
Common mistakes worth avoiding
- Taking cash without a plan for what happens to it – once it leaves the pension wrapper, it loses its tax-free growth status.
- Triggering the MPAA unnecessarily, especially while still working and contributing elsewhere.
- Underestimating the tax band impact of a large single withdrawal.
- Not using Pension Wise (the free, impartial government guidance service) or regulated financial advice before making an irreversible decision.
Frequently Asked Questions
Can I take my whole pension as cash?
Yes, from your minimum pension age – but only 25% is tax-free, with the rest taxed as income in the year you take it, which can push a large withdrawal into a much higher tax band than expected.
What is the Money Purchase Annual Allowance?
A reduced annual allowance of £10,000 that applies to future pension contributions once you’ve flexibly accessed taxable income from a defined contribution pension, down from the standard £60,000.
What happens to my pension when I die?
Until 6 April 2027, it generally sits outside your estate for inheritance tax. From that date, most unused pension funds and death benefits will count towards your estate (employer death-in-service benefits are excluded). For income tax, if you die before 75 your beneficiaries can usually receive it tax-free (lump sums are tested against the Lump Sum and Death Benefit Allowance); at 75 or older, they’re generally taxed at their own marginal rate when they draw it.
Do I need financial advice to access pension freedoms?
It isn’t a legal requirement for most pensions, but given how easy it is to trigger an unnecessary tax charge or the MPAA, advice – or at minimum the free Pension Wise guidance service – is strongly worth having before making an irreversible decision.
Speak to OCM Before You Access Your Pension
Pension freedoms give you real flexibility, but the decisions are largely irreversible – which is exactly where good advice earns its keep. Speak with OCM before making any decisions about accessing your pension.
