Pension Taxation: Limits on Lump Sums
There are limits on:
- The amount of pension savings you can make in a year (the annual allowance) and
- The lump sum you can take when claiming your pension
before you have to pay extra tax. This is in addition to any income tax you pay on your pension when it is paid to you. Most people will not be affected by this as their pension benefits will be less than these limits.
The annual allowance is the amount by which your total pension benefits may increase, in any one year, without having to pay a tax charge. The current annual allowance for most people is £60,000 per year.
Paying additional contributions, including Additional Voluntary Contributions (AVCs) increase your pension growth so increase the likelihood of triggering a tax charge.
Two lump sum limits were introduced from 6 April 2024. If the total of all lump sums you take from UK pensions is more than one of these limits, you will have to pay extra tax, chargeable at your marginal rate.
The lump sum allowance is £268,275 and limits the amount of tax-free cash you can take from your pension. If the total of your UK pension lump sums is likely to exceed £268,275, please contact the Pensions Section.
The lump sum and death benefit allowance is £1,073,100 and the pension fund will check this allowance when you take payment of a lump sum.
Pension taxation is a complex area and legislation can change on a regular basis. If you feel that you will be affected by the taxation limits, you may want to seek your own financial advice. The Pensions Section cannot provide financial advice to scheme members.