Lump sum allowances
As part of your public sector pension, you may be able to take some of your benefits as a tax-free lump sum – but there are limits on how much you can take.

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Am I affected?
Most people will not be affected by the lump sum allowances, unless you have built up a large pension in one or more schemes.
How much pension can I take tax-free?
Lump sum allowance (LSA)
When you retire, you can usually convert up to 25% of your benefits (from all your UK pensions) into a tax-free lump sum.
The maximum tax-free lump sum most people can take is £268,275. This is called the lump sum allowance.
This means you’ll only be affected by this limit if your combined pensions (with all providers) are worth over £1,073,100 in total.
Most people will not be affected, because the maximum lump sum they can take is much lower than £268,275. But if you have built up a large pension in one or more schemes, the LSA may affect you.
What happens if I’m affected?
You will have to pay income tax on any lump sum amount that exceeds the LSA.
For more information, visit the Government website or visit the LGPS website.
How much pension can be passed on tax-free?
Lump sum and death benefit allowance (LSDBA)
One of the benefits of your public sector pension is a death grant, which is a lump sum payment that can be paid to the people you care about in the event of your death (a bit like life cover).
The lump sum and death benefit allowance is £1,073,100 and includes all tax-free pension lump sums you take during your lifetime and after your death (before age 75).
If you take tax-free pension lump sums in your lifetime, it will reduce the remaining tax-free allowance for any lump sum death benefits that can be paid to your beneficiaries (the people you choose to receive the money).
Most people will not be affected, unless you have built up a large pension in one or more schemes or take out lump sums large enough to exceed the allowance.
Jenny’s total pension savings are worth £1,100,000 and she takes a £250,000 tax-free pension lump sum at retirement.
- When she dies at age 70, Lola (Jenny’s daughter and chosen beneficiary) receives £850,000 as a death grant lump sum.
- Combined, the total amount of these lump sums exceeds the LSDBA (£1,073,100).
- So, Lola would receive £823,100 tax-free but pay tax on the remaining £26,900 above the limit.
What happens if I’m affected?
Your beneficiaries will have to pay income tax on any amount of lump sum death benefit that exceeds the LSDBA.
For more information, visit the LGPS website.
From 6 April 2024, the UK lifetime allowance rules, which capped pension tax savings, were abolished. The LSA and LSDBA has replaced the lifetime allowance. While there is no longer a lifetime cap on pension savings, there are still limits on the amount of tax-free lump sums you can take.
Lifetime allowance protections
The Government reduced the lifetime allowance three times between 2006 and April 2024 (when it was abolished). Each time, people with large pension savings could apply for protection from the reductions.
Even though the lifetime allowance no longer applies, protections like Fixed Protection 2016 and Individual Protection 2016 may still let you take a bigger tax-free lump sum than the standard LSA and LSDBA.
The deadline to apply for lifetime allowance protection passed on 6 April 2025. But if you’re affected by the McCloud remedy, you can still apply for Fixed Protection 2016 or Individual Protection 2016 until 5 April 2027. To apply, you need to give HMRC the value of your pension savings as of 5 April 2016. You can ask your pension administrator to provide this information.
Remember – even though the lifetime allowance tax charge no longer applies, having protection could help you take a larger, tax-free lump sum.
Transitional protections
If you took out pension benefits before 6 April 2024, please be aware that you have used up part of your LSA and LSDBA.
Before you take any more lump sum benefits, your pension provider must work out how much of your allowances you have used. Under HMR rules, they must assume you took the maximum tax-free lump sum allowed (usually 25%) – unless you hold a Transitional Tax-Free Amount Certificate (TTFAC).
What is a TTFAC?
A transitional tax-free amount certificate shows the total tax-free lump sums you received. This allows pension schemes to accurately work out how much of the lump sum allowances you have used, rather than assuming you have used the maximum amount.
Who can apply for a TTFAC?
You can apply for a TTFAC if:
- You took pension benefits or reached age 75 between 6 April 2006 and 5 April 2024.
- You haven’t already taken a pension lump sum since 5 April 2024.
- You can provide full evidence that you took less than 25% of the benefits paid to you before 6 April 2024 as tax-free lump sums.
For most people, a TTFAC will have no effect on the lump sum they can take. It mainly affects those who have built up very large pensions. But some people could be worse off with a TTFAC. This could happen if your benefits were taken when the lifetime allowance was higher than the current LSDBA (£1,073,100).
Therefore, we strongly recommend you get independent financial advice before applying.
How do I apply for a TTFAC?
You can use HMRC’s free online tool to check if you’re eligible for a TTFAC. You can apply through any pension scheme you’re a member of but HMRC recommends you apply to either:
- The scheme where you took most of your pension before 6 April 2024, or
- The first scheme from which you’ll take a lump sum after that date.
Important
Once issued, you must use a TTFAC – it can’t be cancelled, even if it leaves you worse off.
If you think you or your beneficiaries might be affected by the LSA or LSDBA, you may want to consider getting independent financial advice before making any decisions.