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    • Home • Advice • Common questions

    Is the 25% tax-free element calculated automatically for final salary pensions?

    21 June 2024

    Question by Boring Money reader

    Hi,

    I have a modest-sized final salary pension which I don't want to take a lump sum from. Would the monthly payments from this automatically include a 25% tax-free element?

    Thanks.

    Answered by Samantha Secomb

    Final salary schemes have their own predetermined rules on whether or not you could exchange the lump-sum you are entitled to for higher annuity payment. Annuity payment enhanced this way would attract normal income tax rules.

    Top tip – Taking a final salary pension does not preclude you from continuing saving into a personal pension as long as you are under 75. You could recycle some of the tax-free lump-sum from your final salary pension into your personal pension pot – that would attract 25% tax-free drawing, and tax-free growth.

    A planner would help you assess the options and quantify the savings you could achieve.

    Answered by

    Samantha Secomb

    Chartered Financial Planner, FPFS

    On a mission to make unbiased financial advice relevant and accessible to women.

    Important stuffHolly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice. For every story on this website about a good investment, or something which went up by 10% or made someone £200, we could also share a story about a bad investment, something which fell in value or lost someone £200. We aim to provide general information and pointers – and btw we are totally agnostic about which providers you might pick – but if you have complex affairs, want personalised advice or need specific recommendations, please look at advice pages and see if regulated digital or traditional financial advice would be the best solution for your needs. Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 10 Lower Thames Street, London, England, EC3R 6AF.
    Risk warningAs is always the case with investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may change in the future.
    Boring Money Ltd is a limited company registered in England and Wales under registration number 09459832 and we have our registered office at 10 Lower Thames Street, London, England, EC3R 6AF.
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