Remember of course that your pension is intended to provide income during your retirement. You should always think carefully about whether you really need to take that lump sum and, if you do, how much will be left in the pot and how this might impact any future contributions you may want to make. The table below shows you what happens to your annual allowance if you take more than your tax-free cash.
|
Your annual allowance |
If you only take part of your tax-free cash |
£60,000* |
If you just take all your tax-free cash |
£60,000* |
If you take more than your tax-free cash |
£10,000** |
If you take lump sums (using UFPLS) |
£10,000** |
* The Annual Allowance is £60,000. If your taxable earnings in the year are below this, then tax relief is limited to 100% of your earnings (or to £3,600 if you have no earnings).
**This is called the Money Purchase Annual Allowance (MPAA) and it applies when you take money out using ‘pension freedoms’ - withdrawing taxable income from your pension through drawdown or lump sums (UFPLS). The MPAA is £10,000. Note if you have earnings above £200,000 from 6 April 2020 the amount you can contribute and get tax relief on may also be lower than £60,000 (down to £10,000).
You can find out more about tax relief and all the allowances in our
pension allowances section.