Tax-free lump sum

Most people will have the option to withdraw a lump sum of up to 25% of their accumulated pension fund as a tax-free lump sum.

Following the pension freedoms, clients can withdraw the remainder of their crystallised funds through a drawdown arrangement, either as an income or as a one off or series of lump sums. Alternatively, they can withdraw all of their pension fund in one uncrystallised fund pension lump sum (UFPLS), of which 25% is not liable for tax.

Points to consider

  • Your client can use their tax-free lump sum for any purpose.
  • Once the individual has received their tax free lump sum they cannot change their mind.
  • Financial intermediaries often advise clients to use their tax-free lump sum to address other financial needs they may have in retirement.
  • Only 25% of your client's pension savings can be taken tax free – any other withdrawals beyond this will be subject to tax at their marginal rate of income tax.