MANY OVER 55’S CAN WITHDRAW 25% OF THEIR PENSION FUND TAX-FREE

by | Oct 4, 2024

Under current pension rules, many pension funds allow pension scheme members to withdraw up to 25% of their pension savings tax-free. Finance Act 2023 limited the tax-free amount to £268,275 unless the individual had applied for protection at a higher amount. There are rumours that the tax-free amount may be further limited, with an amount of £100,000 suggested, and this has resulted in significant withdrawals from pension funds in recent weeks. It should be noted that there are anti-avoidance rules that limit the amount that can be reinvested in the pension fund within a 12 month period.

Pension lump sum “recycling” is countered by anti-avoidance rules where the lump sum withdrawn is more than £7,500 during a one year period and subsequent pension contributions are increased by more than 30% of the lump sum.  A breach of this rule will mean that the lump sum is an unauthorised payment and will be taxed at 40%.