Hi, I’m Lee, and today I’m answering this question – can I take 25% tax free from each of my pension plans?
The short answer is yes, you usually can.
If you have more than one defined contribution plan, which is the most common type of pension plan, you can normally take up to 25% tax free from each as a lump sum.
You can even take your tax-free lump sum from different plans at different times.
If you have a defined benefit pension plan, sometimes called a final or career average plan, you'll usually be able to take a tax-free lump sum from that too.
How it works will depend on the scheme you’re in, so check with your provider.
Just be aware of something called the lump sum allowance, which caps the amount you can take tax free in total – that is, from all your plans put together.
For most people, the lump sum allowance is £268,275, although it could be higher if you have particular protections in place.
And here’s another thing to keep in mind.
If you take more than a tax-free lump sum but you’re still paying into a pension plan, you usually trigger something called the Money Purchase Annual Allowance.
This limits the amount you can pay in across all your plans in a tax year before you face a tax charge.
