Pension Planning - Tax Free Cash

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Tax Free Cash

Under Inland Revenue rules, the maximum tax-free lump sum you can have from an occupational pension scheme is normally 3/80th of your pre-retirement salary for each year you've been in the scheme up to a maximum 1.5 times salary after 40

In some cases, you can build up entitlement to the lump sum at a faster rate than 3/80ths a year. Your occupational pension scheme administrator can tell you if this applies to you.

Maximum pension

Under Inland Revenue rules, the maximum pension you can have is 1/60th of pre-retirement salary for each year you've been in the scheme rising to two-thirds of pre-retirement salary after 40 years, before taking account of any lump sum. In effect, you swap some of this pension for lump sum, so the maximum pension is reduced.

Roughly, you are entitled to the maximum two-thirds pension and you opt to take the maximum lump sum, your pension will be reduced to about one-half of your pre-retirement salary. In some schemes the lump sum is optional; in others it is automatically part of your benefits package.