Taking higher tax-free lump sums with protected allowances
Source: gov.uk (2025-04-05)

You can take different tax-free lump sums from your pension pot depending on the type of protected allowances you hold.

Generally, you can take a tax-free lump sum from your pension of 25% of your pension pot, up to a maximum across all your arrangements of £268,275. This is your lump sum allowance.

Under certain circumstances, either:
- you can also receive a serious ill-health lump sum
- your beneficiaries can receive a lump sum death benefit
Both are tax-free up to a maximum of £1,073,100. This is your lump sum and death benefit allowance.

Any tax-free lump sums and lump sum death benefits will count towards your overall limit of £1,073,100.

If you have protected allowances, the amount of tax-free lump sum you can take and your overall tax-free limit may be higher. Your entitlement amount depends on the protection or enhancement that you hold.

You may have a protection cessation event that means you are no longer entitled to protected allowances. In this case, you will also no longer have entitlement to a higher tax-free lump sum and higher lump sum and lump sum death benefit allowance.

You can only take a maximum of 25% of your pension pot, even if you have a higher amount of tax-free lump sum available.

Enhanced protection

Lump sum allowance

If you hold valid enhanced protection with lump sum protection, you can retain the lump sum protection that is noted on your protection certificate. This means that you are entitled to a tax-free lump sum at the value of the protected percentage of your pension pots on 5 April 2023.

For example, if you hold enhanced protection with lump sum protection of 40% and the value of your pension pots on 5 April 2023 is £1.6 million, you are entitled to a tax-free lump sum of up to £640,000.

For example, you’re entitled to a tax-free lump sum of up to £640,000 if both of the following apply:
- you hold enhanced protection with lump sum protection of 40%
- the value of your pension pots on 5 April 2023 is £1.6 million
Any contributions made after 5 April 2023 will not be included in the calculation for your increased tax-free lump sum.

If you hold valid enhanced protection, but do not hold lump sum protection with it, you are entitled to a tax-free lump sum of up to £375,000.

Lump sum and lump sum death benefit allowance

You may hold valid enhanced protection. If so, you’ll have an increase in your lump sums and lump sum death benefits allowance (the overall limit). The increase is to the value of your uncrystallised pension rights on 5 April 2024.

Conditions

If we receive your successful application:
- before 15 March 2023 — then from 6 April 2023, you can continue to contribute to your pension schemes and you will not lose your enhanced protection
- on or after 15 March 2023 — you’ll still need to meet certain conditions for the protection to be valid
Primary protection

Lump sum allowance

You may hold valid primary protection with lump sum protection. If so, you’re protected at the value of the lump sum protection stated on your protection certificate.

You may hold valid primary protection without lump sum protection. If so, you’ll have protection of your lump sum allowance at 25% of your pension pot, up to a maximum of £375,000.

Lump sum and lump sum death benefit allowance

If you hold valid primary protection, your lump sum and lump sum death benefit allowance is the lower of:
- the value of all of your pension pots on the 5 April 2006
- £1.5 million
Pension sharing orders

You may have a pension debit applied from a pension sharing order that results in value of your pension pot going below £1.5 million. If so, your increased tax-free lump sum will revert to 25% of the standard lifetime allowance.

Fixed protections

If you hold valid:
- fixed protection, you are entitled to a tax-free lump sum of up to £450,000
- fixed protection 2014, you are entitled to a tax-free lump sum of up to £375,000
- fixed protection 2016, you are entitled to a tax-free lump sum of up to £312,500
Lump sum and lump sum death benefit allowance

If you hold valid:
- fixed protection, you are entitled to a lump sum and death benefit allowance of £1.8 million
- fixed protection 2014, you are entitled to a lump sum and death benefit allowance of £1.5 million
- fixed protection 2016, you are entitled to a lump sum and death benefit allowance of £1.25 million
Conditions

If we receive your successful application:
- before 15 March 2023 — then from 6 April 2023, you can continue to contribute to your pension schemes without losing your fixed protection
- on or after 15 March 2023 — you’ll still need to meet certain conditions for the protection to be valid
Individual protections

If you hold valid individual protection 2014, you applied for your lifetime allowance to be protected at the lower of:
- the value of all of your pension pots on the 5 April 2014
- £1.5 million
If you hold valid individual protection 2016, you applied for your lifetime allowance to be protected at the lower of:
- the value of all of your pension pots on the 5 April 2016
- £1.25 million
Lump sum allowance

If you hold individual protection 2014, you will be entitled to a tax-free lump sum of the lower of:
- 25% of the value of all your pension pots on 5 April 2014 (previously known as your protected amount)
- £375,000
For example, if the value of all your pension pots on 5 April 2014 was £1.4 million, you’ll have an increased tax-free lump sum of £350,000.

You may have continued to contribute to your pension schemes from 6 April 2014. These contributions are not counted towards the amount of tax-free lump sum you’re entitled to.

If you hold individual protection 2016, you will be entitled to a tax-free lump sum of the lower of:
- 25% of the value of all your pension pots on 5 April 2016 (previously known as your protected amount)
- £312,500
For example, if the value of all your pension pots on 5 April 2016 was £1.3 million, you’ll have an increased tax-free lump sum of £312,500.

You may have continued to contribute to you pension schemes from 6 April 2016. These contributions will not count towards the amount of tax-free lump sum you’re entitled to.

Lump sum and lump sum death benefit allowance

If you hold individual protection 2014

You’re entitled to a lump sum and lump sum death benefit allowance. This is equal to your protected amount stated on your protection certificate. This is the value of your pension pots on 5 April 2014, to a maximum of £1.5 million. Any contributions made after this date do not increase your entitlement.

If you hold individual protection 2016

You’re entitled to a lump sum and lump sum death benefits allowance. This is equal to your protected amount stated on your protection certificate. This is the value of your pension pots on 5 April 2016, to a maximum of £1.25 million. Any contributions made after this date do not increase your entitlement.

Pension debits applied from pension sharing orders

If you have a pension debit applied that results in the value of your pension pot falling below the minimum value required for the protection, your increased tax-free lump sum will revert to 25% of your pension pot, up to the maximum of £268,275. Your lump sum and death benefit allowance will revert to £1,073,100.

Enhancement factor

If you hold a valid enhancement factor that is valid on or before 5 April 2024, you may have entitlement to higher allowances.

You may have an enhancement factor from pre-commencement pension credit rights. In this case, your lump sum allowance will be 25% of your pension pot, up to a maximum of £375,000.

You may hold one or more enhancement that is from:
- pre-commencement credit rights
- Pension Credit rights from previously crystallised rights
- non-residency
- transfers from a recognised overseas pension scheme
If so, your lump sum and death benefit allowance will be equal to £1,073,100 plus the value of your enhancement factor against £1,073,100.

For example, if you have an enhancement factor of 0.15, your lump sum and death benefit allowance will be £1,234,065. This is because the factor of 0.15 against £1,073,000 is £160,095. This value added on to £1,073,100 equals £1,234,065.

You may hold a protection that means you have a higher lump sum and death benefit allowance. If so, your overall allowance will be both your:
- protected allowance
- the value of your enhancement factor against your protected allowance
For example, if you hold Individual Protection 2014 at £1.3 million and a factor of 0.23, your overall lump sums and death benefits allowance would be £1,599,000. This is because the factor of 0.23 against £1.3 million is £299,000. This value added on to £1.3 million equals £1,599,000.

Tax on excess lump sums

You can only take a maximum of 25% of your pension pot, even if you have a high amount of tax-free lump sum available.

Any lump sums taken above this amount will be taxed at your marginal rate.

Information you should give to your pension schemes

If you hold protected allowances, you should give details of this to your pension schemes. You may need to also give them details of any other pensions and lump sums you have taken.

If you hold enhanced protection, you should tell your pension schemes as soon as possible, so they are aware of the value of your pension pot on 5 April 2023.

Losing your protected allowances

Find out more about protection cessation events, losing your protected allowances and how to avoid this (https://www.gov.uk/guidance/losing-your-lifetime-allowance-protection).