Tax-Free Cash

Tax-free cash is the cash lump sum taken when you purchase your retirement income. There are limits as to how much of your pension fund you can take as tax-free cash.

Tax-free cash entitlement

When you first convert your pension pot into a retirement income you can usually receive up to 25% of the value of your pension pot as a tax-free cash lump sum. It is now more commonly known as the ‘pension commencement lump sum’ (PCLS). Naturally, if you take any tax-free cash from your pension pot you will have less to buy your retirement income with.

• If you have an old style retirement annuity, you can only get 25% of the fund as tax free cash – not 3 times residual pension as it was.
• It is possible to get access to your tax-free cash early without actually buying an annuity.
• If you have occupational pension scheme benefits from before Pensions A-Day, 6 April 2006, you may have a tax-free cash entitlement in excess of 25% of your pension fund value.