Limits to tax-free pension payments

Limits to tax-free pension payments

Most people will be able to take 25% of the value of their pension free of tax. However, the government limits the total tax-free amount you can take to £268,275. This is known as the ‘lump sum allowance‘. For this limit to apply to you, the total value of all your pension savings would, broadly, need be more than £1.073 million.

There is also the ‘lump sum and death benefit allowance‘. This is a total tax-free limit for all lump sum benefits paid from all your pension arrangements. This allowance is currently set at £1.073 million. The lump sum and death benefit allowance includes:

1. retirement lump sums (please see above)

2. lump sums payable if you were to fall into serious ill-health

3. lump sums payable to your to your beneficiaries if you were to die

In other words, when you come to take your pension benefits from any pension, the amount of tax-free cash you take will reduce the tax-free allowance:

1. you’d be able to take if you became seriously ill, or
2. what your dependents would be able take if you were to die

Measuring your tax-free cash entitlement.

When you come to retire from the Plan, we’ll need to know about any benefits you have taken from other pensions in the past. This will allow us to determine how much of your lump sum allowance and lump sum and death benefit allowance you have left.