Under current pension regulations, many pension schemes allow members to withdraw up to 25% of their pension savings tax-free. However, the Finance Act 2023 capped this tax-free amount at £268,275, unless an individual had secured protection for a higher limit. There are rumours circulating that the tax-free allowance may be reduced further, with a figure of £100,000 being suggested, which has prompted a surge in pension fund withdrawals in recent weeks. It is important to note that anti-avoidance rules restrict how much can be reinvested into a pension fund within a 12-month period.

Pension lump sum “recycling” is addressed by anti-avoidance measures if the lump sum withdrawn exceeds £7,500 within a single year and subsequent pension contributions increase by more than 30% of that lump sum. A breach of this rule would result in the lump sum being classified as an unauthorised payment, subject to a 40% tax charge.