Budget basics - busting the pension jargon

The new financial year for 2024/25 saw a change to some pension allowances. Whether your 4 or 40 years aways from retirement, it’s important to understand what these terms mean and how they could impact you. Here, we’ve simplified what each one means and how much the allowance is.

Annual allowance

The annual allowance is the total amount that can be saved into your pension or pensions (if you have more than one pot) each year before you’ll have to pay an additional tax charge.

This allowance is £60,000.

Money purchase annual allowance

If you access any taxable money from your pension(s), then you may see your allowance reduce. This is known as the money purchase annual allowance. This means once you’ve accessed your pension, you can pay more money into it afterwards before you pay additional tax.

This allowance is £10,000.

Lump sum allowance

When you access your pension, you can usually take up to 25% of it as a tax-free lump sum. The lump sum allowance is the maximum amount of money you can take as tax-free lump sums from all the pensions you have before you’ll have to pay an additional tax charge.

This allowance is £268,275.

This allowance will be higher if you have any protected tax-free lump sums, or a protected lifetime allowance.

Lump sum and death benefit allowance

This is the total amount of tax-free money you can take across all the pensions you have. Depending on your circumstances there are different ways you can take your tax-free money. See our Tax Year Rates and Allowances 2024/2025 for further information.

This allowance is £1,073.100.

This allowance will be higher if you have any protected tax-free lump sums, or a protected lifetime allowance. An additional tax charge will need to be paid on any funds paid above this allowance, by whoever receives the payment.

Overseas transfer allowance

If you live abroad, this is the maximum amount you can transfer from any registered UK pension schemes you have, to any Qualifying Recognised Overseas Pensions Schemes.

This allowance is £1,073.100.

A 25% overseas transfers charge will be taken from any transfers made over this amount.

Please visit Tax Year Rates and Allowances 2024/2025 for the latest list of tax rates and allowances. To help you understand any tax implications, you should speak to a financial adviser. You can find one in your local area at unbiased.co.uk. Advisers usually charge for their services.