Tax-free Lump Sum

If you have a personal pension or its predecessor, you are permitted on retirement to take a proportion of your pension fund as a tax free lump sum. This is entirely voluntary but it suits a lot of people who'd rather remove the cash and control it themselves - the remainder of the fund will usually be used to buy an annuity - an income for life.

If you hold a personal pension, the Taxes Act 1988 stipulates that the lump sum must be paid when your annuity starts. It is limited to a maximum of 25% of the total value at retirement of your pension benefits.

See also: Pensions & Retirement Centre

Last Updated: April 2008 © Moneyextra.com

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