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In this section
What is the lump sum allowance?
Important information - please remember that the value of investments can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access your pension until age 55 (57 from 2028).
Know your tax-free cash limit
If the value of your pensions is close to £1,073,100, or likely to reach this by the time you retire, then you need to know about the lump sum allowance (LSA). This limits the amount of tax-free cash you can take from the value of all your pension arrangements, including:
- final salary/career average (defined benefit) schemes
- personal pensions (also known as defined contribution pensions)
- any pension that has paid you a lump sum or income.
It doesn’t include the State Pension.
The LSA is one of three allowances that were brought in on 6 April 2024 to replace the lifetime allowance (LTA). The other two are the lump sum death benefit allowance (LSDBA), which affects the beneficiaries of someone who dies before the age of 75; and the overseas transfer allowance (OTA), which is a limit on the value of the pension savings you can transfer abroad without having to pay a tax charge.
How much is my lump sum allowance?
For most people, the standard starting LSA is £268,275. This is the limit of the tax-free money you can take from your pension savings in total - whether that’s as a single tax-free lump sum or spread across several withdrawals, each with a tax-free portion. The figure is based on 25% of the old standard lifetime allowance.
If the total value of all your pension savings is under £1,073,100, the LSA is unlikely to affect you.
What if I had a protected lifetime allowance?
If you applied to HMRC for lifetime allowance protection - or if you had tax-free cash protection - your starting LSA may be higher than the standard LSA. There are different types of protection, so it’s best to speak to an authorised financial adviser to find out how you might be affected.
What if I’ve already started taking my pension savings?
If you’ve already taken all the tax-free cash you were entitled to before 6 April 2024, then you won’t have any LSA left. If you took just some (or none) of your tax-free allowance before 6 April 2024, then your starting LSA might be reduced accordingly. If this is the case, you might want to consider applying for a transitional tax-free amount certificate. This shows how much tax-free cash you have left to take after 6 April 2024. You are only eligible to apply for one if you:
- Have taken pension benefits between 6 April 2006 to 6 April 2024, and
- Have not taken pension benefits from 6 April 2024 that used any of your LSA / LSDBA.
To apply for a transitional tax-free amount certificate please call us.
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Simply get in touch to talk about your options in more detail
We can help
Decisions about taking tax-free cash could impact your future income. Talk to our retirement specialists about your options. We’re open Monday to Friday, 9am - 5pm.
Pension Wise
The government's Pension Wise service offers free, impartial guidance to help you understand your options at retirement. Visit the website or call 0800 011 3797.
Your options for taking tax-free cash
If eligible you can withdraw tax-free cash any time or leave it to be included in your retirement plan. Withdrawing small amounts over several years could make your overall income more tax efficient.
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Please remember that past performance is not necessarily a guide to future performance, the performance of investments is not guaranteed, and the value of your investments can go down as well as up, so you may get back less than you invest. When investments have particular tax features, these will depend on your personal circumstances and tax rules may change in the future. This website does not contain any personal recommendations for a particular course of action, service or product. You should regularly review your investment objectives and choices and, if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser. Before opening an account, please read the ‘Doing Business with Fidelity’ document which incorporates our client terms. Prior to investing into a fund, please read the relevant key information document which contains important information about the fund.
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