The number is not a rumour
For the tax years 2024-25, 2025-26 and 2026-27, the standard individual lump sum allowance is £268,275. That figure is published by HMRC in its Pension Schemes Rates and Allowances table, and it is repeated in the Pensions Tax Manual at PTM171000. It is not a threshold that moves with your pot, your salary or your retirement date. It is a fixed cash amount, and it has been flat across the three years listed.
The lifetime allowance was abolished from 6 April 2024. That much is true. But the tax-free-cash slice of the old regime did not disappear with it. It was replaced by the lump sum allowance, and the lump sum and death benefit allowance, which together govern how much of your pension can come out free of income tax and how much death benefit can be paid tax-free. The headline changed. The arithmetic did not.
For a professional or couple with £300k or more across pensions, ISAs and property, the useful question is not whether the cap exists. It does. The useful question is how to read your own position against it, and what that means for the decisions you are about to make.
What actually consumes the allowance
The lump sum allowance is not consumed by every penny that leaves a pension. It is consumed by what HMRC calls a relevant lump sum. According to PTM171000, there are three:
- a pension commencement lump sum — the tax-free cash you take when you crystallise benefits;
- an uncrystallised funds pension lump sum (UFPLS) — a lump sum taken directly from uncrystallised funds, where 25% is tax-free and 75% is taxed as pension income, provided you have sufficient allowance;
- a stand-alone lump sum — a specific category for certain protected rights.
When one of these events occurs, the scheme administrator compares the amount being paid against the allowance you have left. Anything above that available allowance is taxed at your marginal rate. HMRC’s rates page states this plainly: lump sums are taxed at your marginal rate on anything above £268,275.
Two practical points follow. First, the allowance is individual, not per scheme. If you have three pots and take tax-free cash from one, the allowance consumed is yours, and it reduces what is available from the other two. Second, the allowance is not the same as the lump sum and death benefit allowance, which is £1,073,100 on the same published table. The death benefit allowance covers a wider set of payments, including serious ill-health lump sums and most authorised lump sum death benefits. They interact, but they are not interchangeable.
Why larger pots feel the cap more
The allowance is a fixed cash figure. That means the larger the pot, the smaller the proportion of it that can come out tax-free. This is a ratio problem, not a rule change.
Take a £600,000 pension pot. £268,275 is roughly 45% of it. Take a £1.2 million pot. The same allowance is roughly 22%. The cash amount is identical. The proportion is not. For a couple with two large pots, the household question is not “how much tax-free cash can we get” but “whose allowance is being consumed, in what order, and against which pot”. That is a sequencing question, and it is the kind of question a good adviser relationship should be able to answer without reaching for the headline number as if it were the conclusion.
The uncomfortable truth is that for larger pots, a meaningful portion of the pension will eventually be taxed on the way out, whether as income or as a lump sum above the allowance. The planning conversation is about how much, when, and at what rate — not about whether the cap can be avoided. It cannot be avoided by wishing it away. It can be managed by understanding which events consume it and in what order.
The document most people have never asked for
Scheme administrators are required to tell members how much of their lump sum allowance or lump sum and death benefit allowance has been used up by relevant benefit crystallisation events in the scheme. HMRC’s guidance for administrators on annual and lifetime allowance statements sets out the standard figures — £268,275 and £1,073,100 — and the reporting obligation. If a pension is being paid, the statement must be provided at least once every tax year. If no pension is being paid, it must be provided within three months of the event.
This is the relevant benefit crystallisation event statement, and it is the most under-used artefact in this decision. It is your own record of allowance consumed. Before any conversation about taking cash, it is the natural first document to request — not the adviser’s projection, not the provider’s illustration, but the statement that says what has already been used.
There is a practical warning buried in PTM171000. The method by which a scheme administrator establishes how much allowance you have left is not prescribed by legislation. The administrator may rely on a simple member declaration, or may require a detailed questionnaire with supporting evidence. If you fail to provide the information, the administrator will assume you have no lump sum allowance available. That assumption is not a penalty. It is a default. But it means record-keeping is a member responsibility, not just an administrator one. If you have crystallised benefits across multiple schemes over the years, your own record of what was taken and when is the thing that prevents a default assumption from becoming a tax charge.
Protections: check, do not assume
Some individuals hold a protected or enhanced lump sum allowance above £268,275. PTM171000 lists the categories: primary protection, enhanced protection, fixed protection 2012, 2014 and 2016, and individual protection 2014 and 2016. If you hold one of these, the standard figure is not your figure. If you do not, it is.
The honest position is that most people reading this will not hold a protection, and some will not know whether they do. The right move is to check rather than assume in either direction. A protection that is lost or never claimed is worth nothing. A protection that is assumed but not held is worse than nothing, because it leads to a plan built on a number that does not exist.
What this means for the adviser conversation
The FCA’s Consumer Duty requires firms to put their customers’ needs first and sets high standards of protection for retail consumers. That is the standard against which a recommendation about tax-free cash should be read. It does not prescribe a particular strategy. It does require that the advice is suitable and that the client understands what is being recommended and why.
A useful test of an adviser in this area is whether they can explain, in plain terms, which of your pots have already triggered a relevant benefit crystallisation event, and what your remaining allowance is — without reaching for the headline number as if it were the answer. If they cannot, that is information about the relationship, not about the tax rules.
The Financial Services Register is a public record of firms and individuals authorised or previously approved by the FCA or the PRA, and it includes Directory Persons data on individuals carrying out regulated activities. Checking the register is a five-minute exercise, and it is the first step in auditing any adviser relationship. The second step is asking for the relevant benefit crystallisation event statement. The third is asking how the allowance has been tracked across pots, and what happens if a pot is crystallised in a different order.
None of this is a reason to avoid taking tax-free cash. It is a reason to take it with your eyes open about what it consumes. The allowance is a resource. Like any resource, it is worth knowing how much you have before you spend it.
Where this sits in the wider plan
The lump sum allowance is one decision among several that shape a pre-retirement plan. It sits alongside the timing of your stop-work date, the funding of the bridge to State Pension age, the psychology of decumulation, and the family paperwork that quietly decides what happens to the money. The allowance question is not separate from those. It is part of the same conversation about how much of your wealth is accessible, on what terms, and at what tax cost.
If you are years away from retirement, the question worth asking now is not “how much tax-free cash can I get” but “how is my allowance being consumed, and by which pots”. That is a question about sequencing, and sequencing is easier to get right before the events occur than after. The article on the question you should be asking years before you retire develops that point in more detail.
The £268,275 figure is not a trap. It is a published number, and it has been stable across the years listed. The trap, if there is one, is treating it as someone else’s problem until the crystallisation event is already in front of you. The exit is straightforward: know your remaining allowance, know which pots have consumed it, and ask for the statement that proves it.
FAQ
Is the £268,275 figure the same as the old lifetime allowance?
No. The lifetime allowance was abolished from 6 April 2024. The lump sum allowance is a separate cap on the tax-free element of certain lump sums. The lump sum and death benefit allowance, at £1,073,100, is a separate figure again. They interact, but they are not the same thing.
Does the allowance apply per pension pot or per person?
Per person. If you take tax-free cash from one scheme, the allowance consumed is yours, and it reduces what is available from your other schemes. That is why the cross-scheme record matters.
What happens if I exceed the allowance?
The excess is taxed at your marginal rate. HMRC’s rates page states this directly. The scheme administrator compares the amount being paid against your available allowance, and the excess is subject to income tax.
How do I find out how much allowance I have left?
Ask your scheme administrator for the relevant benefit crystallisation event statement. If a pension is being paid, it should be provided at least once every tax year. If no pension is being paid, it should be provided within three months of the event. Your own record of crystallisation events across schemes is also important, because administrators may rely on what you tell them.
Could I have a protected allowance above £268,275?
Possibly. Protections include primary protection, enhanced protection, fixed protection 2012, 2014 and 2016, and individual protection 2014 and 2016. Check rather than assume. A protection that is assumed but not held leads to a plan built on a number that does not exist.