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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.

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    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.