11 February 2025
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Despite widespread industry speculation prior to the autumn budget, the chancellor didn’t reduce the amount of tax-free cash that members can take from their pensions – although she is planning to change the rules around tax-free payouts to beneficiaries on the death of a member.
Most members can continue to take up to 25% of their retirement savings across all schemes as tax-free cash from the age of 55, subject to the lump sum allowance (LSA) of £268,275*.
Some pension arrangements allow their members to withdraw the full tax-free cash part of their pot and keep the balance invested. However, this is not possible in the Roche Pension Fund. We can only pay the full 25% tax-free amount to you in one payment if you’re withdrawing all of the money in your pension account as a cash lump sum.
If, however, you transferred all of the money in your account to an annuity and/or drawdown provider, you could access up to 25% as a tax-free lump sum (paid by the new provider), and then any subsequent payments to you would be taxed as income.
The Fund allows partial withdrawals and transfers, which gives you some additional options for accessing tax-free cash before the rest of your benefits – but the tax-free payments would be staggered, rather than available in one lump sum. Also, once you’ve taken a partial withdrawal or transfer from the Fund, you have to empty your account the next time you access it.
Here are some examples that show how tax-free cash might be combined with other options in the Fund. Let’s assume you have £100,000 in your account.
- Option 1
You access the full £100,000 as a one-off cash lump sum, payable from the Fund. The first 25% (£25,000) would be paid tax free and the rest (£75,000) would be taxed as income at your marginal (highest) rate. Fidelity would deduct the tax due. - Option 2
You transfer the full £100,000 to a different provider offering an annuity or drawdown product (or a combination of products). You withdraw £25,000 as tax-free cash (paid by your new provider); any subsequent payments from the provider would be taxed as income. - Option 3
You transfer part of your account (say £90,000) to another provider, leaving £10,000 in the Fund (the minimum amount under the Rules). You then arrange with your new provider to either take the tax-free cash in one payment (25% x £90,000) and pay income tax on all subsequent withdrawals, or you can receive 25% of each future payment as tax-free cash. When you withdraw or transfer your final £10,000 from the Fund, you can decide whether to take some of it as tax-free cash.
These examples are just meant to give you an idea of the different ways you can access your pension account, but we aren’t advising you to take a particular option. It’s important to discuss it properly with an authorised financial adviser, who’ll be able to help you understand the best options for your circumstances.
It’s also important to note that once you’ve accessed your pension savings, the total amount you can contribute and receive tax relief on may be reduced to £10,000 a year under the money purchase annual allowance (MPAA).
Note for employed deferred members
If you built up benefits in the Fund’s DB Section before it closed to future accrual, the value of your DB pension will also be taken into account when calculating how much tax-free cash you can take. This amount includes any AVCs you may have invested or any contributions made via Bonus Choice. The actual calculation of your maximum tax-free cash is complex. You will be provided with an illustration of this amount when you approach retirement.
*Your available lump sum might be higher than this if you’ve previously applied (before March 2023) to HMRC for ‘pension protection’.