Using your pension to pay for private healthcare

You don’t want illness, pain or mobility issues to come between you and an enjoyable retirement, but paying for private healthcare could provide a solution to the problem.

Going private means you can see a consultant, get a diagnosis and receive treatment much faster than you would on the NHS.

Treatment can also be on your own terms: you get to decide when and where you’re treated and choose the right consultant for you.

If you decide to pay for surgery, you may be able to use your pension to foot the bill.

But, how easy it will be, depends on the type of pension you have.

Defined contribution pensions

With a defined contribution pension, you (and potentially your employer) pay into a pot that’s invested on your behalf. How much you get when you retire will depend on the amount you have saved and how well your investments perform. When you retire it will be up to you to decide how you manage your pension pot. So, if you want to use that money to pay for private surgery, you can.

As defined contribution pensions provide you with your own pot of cash, they are relatively easy to access and you can start taking money out at any time from age 55 (rising to 57 in 2028). This includes income as well as lump sums. 

Although pension income is taxable, you can usually take 25% tax-free.

All personal pensions work in this way (including SIPPs) as well as most modern workplace pensions.

Defined benefit pensions

Defined benefit workplace pensions pay an inflation-linked income that’s guaranteed for life, based on your earnings and length of service when you retire.

But while defined benefit pensions offer security, they aren’t terribly flexible. When you retire you can take 25% of your pension as a tax-free lump sum, but you won’t be able to take out further lump sums. This means they aren’t quite so easy to turn to for larger emergency expenses, like private medical treatment.

Some private sector workers still have defined benefit pensions, but they are now most common in the public sector.

Lots of people think of pensions as being pretty rigid and inflexible. But rules introduced in April 2015 mean that if you have a defined contribution pension, it’s now much easier to access your retirement savings – even if you haven’t yet retired.

There are a number of different ways you can access your pot.

1. Uncrystallised funds pension lump sums (UFPLS)

Uncrystallised funds pension lump sum (UFPLS) might not roll off the tongue, but as complicated as it might sound, it can be a simple way of taking money out of your pension before you retire and start taking income.

UFPLS rules allow you to take lump sums out of your pot, without taking any further action with your savings - like moving into drawdown (where your pension remains invested but you can start taking income) or buying an annuity (an insurance policy that pays a guaranteed income for life).  This is referred to as ‘crystallising’ your pension.

But while UFPLS withdrawals might be easy, they’re not tax-effective. That’s because only the first 25% of your withdrawal will be paid tax free. The remainder will be added to your income and taxed accordingly. 

Let’s say you took out £15,000 to pay for hip replacement surgery. That means only £3,750 would be paid tax-free and the remaining £11,250 would be taxed at your highest rate of income tax. 

A basic rate taxpayer would face a 20% tax charge: £2,250

A higher rate taxpayer would face 40% tax charge: £4,500

And depending on your income, it could be enough to bump you into a higher rate tax bracket. You may also be hit with emergency tax on your withdrawal, if your pension provider doesn’t have an up-to-date tax code for you.

As a result you will need to withdraw substantially more than the cost of your surgery, to ensure you have enough to cover the tax bill. This means that UFPLS withdrawals aren’t an ideal way of funding private medical treatment.

It’s also important to note that if you make an UFPLS withdrawal before you retire, the amount you can continue to pay into your pension each year will drop substantially from a high of £60,000 (or 100% of your income) to just £10,000 a year (the Money Purchase Annual Allowance). This is a vital consideration if you need funds in your mid-50s but still want to keep pumping money into your pension in the run up to retirement.

2. Cash in a whole pension

If you’ve changed jobs a few times over your career, it’s quite likely you’ve got a number of different pensions.

If you have any small pensions, you could decide to cash one in entirely to pay for private treatment. But again, only the first 25% would be paid tax-free.

It’s worth noting though that you can cash in pensions worth less than £10,000 without triggering the Money Purchase Annual Allowance (thanks to so-called ‘small pot rules’).

3. Take a tax-free lump sum

If you want to make a large withdrawal from your pension, you’ll save money by taking a tax-free lump sum.

Everyone can take 25% of their pension tax free. But to take it as a lump sum, you’ll need to ‘crystallise’ your pension by either moving money into drawdown or buying an annuity.

Lots of people will take all of their tax-free cash (officially referred to as your pension commencement lump sum or PCLS) in one go when they retire. 

But, you can take it in chunks, crystallising your pension gradually, if that makes more sense for you.

The maximum tax-free cash that you can take out of your pension is capped at £268,275.

What if I have already started taking income from my pension?

Paying for private medical treatment could be an excellent use of your tax-free cash. But, if you’ve already retired and spent your tax-free cash, you may still be able to take further lump sums out of your pension – it will just depend on what you have done with pot.

• Drawdown: If you use an income drawdown plan, you have total control over your retirement savings. This means you could withdraw enough to cover the cost of your treatment if you wanted – the catch is that your whole withdrawal would be subject to tax. A large withdrawal could also be enough to bump you into a higher tax rate.
• Annuity: If you used your retirement savings to buy an annuity, you’ll get a fixed income, so you won’t be able to take lump sums.

While it might be relatively easy to take money out of your pension to pay for healthcare, it doesn’t necessarily mean that you should.

Many large pension withdrawals will come with a hefty tax bill and, even if you can use your tax-free lump sum, it’s still important to think carefully.

The average pension wealth for people aged between 65 and 74 is £145,900 according to the Office for National Statistics.

Your pension will need to last you for life – taking a large withdrawal out of your pot will reduce the amount of money you will have for the rest of your retirement. But it’s not just the size of the withdrawal you need to think about: with less capital invested, you’ll also reduce the potential growth of your pension as your retirement progresses too.

Or, if you want to cash in a smaller pension completely, you’ll need to think about whether you’ll have enough retirement income from other sources.

This will be particularly important if you’re still working or in the early years of retirement and have less certainty around what your future costs are likely to be.

If you’re not sure how to proceed, it’s worth talking to an expert and getting financial advice. A financial adviser will be able to do a cashflow analysis on your retirement savings, helping you work out whether you can afford it over the longer term.

How much does private surgery cost?

The average cost of some common surgeries:

• Knee replacement: £15,138
• Hip replacement: £14,412
• Lumbar decompression: £9,769
• Slipped disc removal: £8,613
• Cataract surgery: £2,953

Click here to find out how much private medical treatment costs in the UK

While using your pension may be one option, there are other ways of paying for private healthcare in retirement, which may better suit your circumstances. These include:

A self-pay pot

If you want to be able to pay for medical treatment in retirement out of your pocket, it’s best to have a dedicated self-pay pot.

But if you’re finding yourself wanting to pay for surgery without one, it’s important to think carefully about what pot you take your money from.

Pensions may not always be the best option and it may be more tax effective to take the money from other savings or investment accounts, if you have the funds available. Any money that you take out of ISAs will be paid tax-free.

Read our guide to find out how to build a self-pay retirement pot

Private health insurance

If you’re yet to retire, or are still in the early years of your retirement, it may be worth considering private health insurance – if you have sufficient pension income.

Health insurance can cover the cost of seeing a private consultant, diagnosis and treatment and means that, if you do need surgery, you won’t be faced with a big bill.

But it’s important to note that health insurance doesn’t cover chronic conditions, emergency treatment or any pre-existing conditions that you have when you take out the policy.

The exact level of cover will also vary according to your health insurance provider and the level of cover that you choose.

If you haven’t retired and currently have health insurance from your employer, it may be worth finding out if you can keep your cover when you finish work. But before you agree it’s important to check the new price, terms and whether treatment for ongoing conditions will be maintained.

Health insurance for retirees does tend to be more expensive as there’s a higher chance you’ll need to claim, but there are ways to control costs. For example, you could remove or lower your  cover for outpatient treatment, agree to pay a higher excess or choose from a restricted list of consultants (known as guided consultants).

A private medical insurance broker will be able to give you tailored advice and help you pick the right provider and level of cover for you.

To get an idea of your health insurance options you can read our guide to the best health insurance providers in 2026