5 Critical UK Pension Withdrawal Limits For Over 60s In 2025/2026 You MUST Know
The UK pension landscape for those aged 60 and over underwent a seismic shift with the abolition of the Lifetime Allowance (LTA), making the rules for withdrawing your hard-earned savings both simpler and, in some key areas, more restrictive. As of the 2025/2026 tax year, the concept of a single 'withdrawal limit' for income is largely obsolete, replaced by a crucial set of tax and contribution allowances that dictate how much you can take tax-free and how much you can still pay in. This article, updated for the current date in December 2025, breaks down the five most critical financial limits you must understand to manage your retirement income efficiently and avoid unexpected tax bills.
For individuals approaching or already in retirement, navigating the new rules—specifically the Lump Sum Allowance (LSA) and the Money Purchase Annual Allowance (MPAA)—is essential. Ignoring these limits could lead to a significant chunk of your pension being taxed at your marginal rate, fundamentally altering your retirement strategy. Understanding the nuances of Flexi-Access Drawdown (FAD) income taxation is now more important than ever.
The New Tax-Free Withdrawal Limits: LSA and LSDBA 2025/2026
The biggest change affecting over 60s is the formal replacement of the Lifetime Allowance (LTA) with two new, distinct allowances. These figures govern the maximum tax-free cash you can take from your pension pots, both during your lifetime and upon death.
1. The Lump Sum Allowance (LSA): Your Maximum Tax-Free Cash
The LSA is the absolute maximum amount of tax-free cash you can receive from your pension savings across your lifetime. For the 2025/2026 tax year, this figure is set at a standard £268,275. [cite: 6, 9, 15 (from step 1)]
- The 25% Rule: While the maximum LSA is £268,275, the amount you can take from any one pension pot is generally limited to 25% of the value of that pot. For example, if your pension is valued at £500,000, your tax-free cash (Pension Commencement Lump Sum or PCLS) would be £125,000 (25%), leaving £143,275 of your LSA remaining for future withdrawals.
- The 'Limit' is Tax-Free: It is crucial to understand that the LSA is not a limit on how much you can withdraw in total, but rather a cap on the portion that is tax-free. Any lump sum withdrawals exceeding your available LSA will be taxed as income at your marginal rate.
2. The Lump Sum and Death Benefit Allowance (LSDBA)
The LSDBA is a broader limit that accounts for all tax-free lump sums paid to you during your lifetime (the LSA) and any tax-free lump sum death benefits paid to your beneficiaries. [cite: 7, 13 (from step 2)]
- The LSDBA Figure: For the 2025/2026 tax year, the standard LSDBA remains at £1,073,100. [cite: 5, 7, 12 (from step 2)]
- Impact on Inheritance: This allowance is particularly important for estate planning. If your pension fund exceeds this amount, any lump sum death benefits paid out over the LSDBA will be subject to income tax at the beneficiary's marginal rate, provided the member dies after age 75. If the member dies before age 75, the lump sum is generally tax-free up to the LSDBA limit.
The Invisible Withdrawal Limit: Income Tax and Personal Allowance
Unlike the old system of capped drawdown, the modern Flexi-Access Drawdown (FAD) system has no maximum limit on the amount of income you can take from your pension each year. [cite: 18 (from step 1)] The real "limit" is the amount you are willing to sacrifice to HM Revenue & Customs (HMRC) in income tax.
3. Marginal Income Tax Rates and Your Personal Allowance
Every penny of income you withdraw from your pension (beyond the initial tax-free lump sum) is treated exactly like a salary and is subject to Income Tax.
- Personal Allowance (PA): In 2025/2026, the standard Personal Allowance is £12,570. This is the amount of income you can receive tax-free each year. [cite: 2, 6, 11 (from step 2)]
- Tax Bands: Once you exceed the PA, your withdrawals are taxed at the relevant marginal rates, which are:
- Basic Rate: 20% (on income between £12,571 and £50,270) [cite: 11 (from step 2)]
- Higher Rate: 40% (on income between £50,271 and £125,140) [cite: 11 (from step 2)]
- Additional Rate: 45% (on income over £125,140) [cite: 11 (from step 2)]
- The State Pension Factor: The full New State Pension for 2025/2026 is approximately £11,973 per year. [cite: 13 (from step 1)] This amount counts towards your total income and uses up almost all of your £12,570 Personal Allowance, meaning almost all subsequent pension withdrawals will be taxed at the Basic Rate (20%) or higher.
The Strategy: The effective "withdrawal limit" is therefore the amount you can take without pushing yourself into the 40% Higher Rate tax bracket, or the amount you need to cover your living expenses while minimising tax leakage.
The Contribution Limits: The Hidden Restriction
For over 60s who have retired but later return to part-time work, or who simply wish to continue saving, the rules around re-contributing to a pension are critical. Accessing your pension flexibly triggers a permanent reduction in your ability to save tax-efficiently.
4. The Money Purchase Annual Allowance (MPAA): The £10,000 Trap
This is arguably the most restrictive "limit" for active savers over 60. Once you trigger the MPAA by flexibly accessing your defined contribution pension (e.g., taking an income from Flexi-Access Drawdown or an Uncrystallised Funds Pension Lump Sum (UFPLS) beyond your tax-free cash), your ability to contribute to a pension is severely curtailed. [cite: 5, 11 (from step 1)]
- MPAA Limit 2025/2026: The limit for the 2025/2026 tax year is £10,000. [cite: 2, 5, 8 (from step 1)]
- The Consequence: If your total contributions (yours and your employer's) exceed £10,000 in a tax year after triggering the MPAA, you will face an Annual Allowance charge on the excess, effectively clawing back the tax relief you received.
5. The Standard Annual Allowance (AA): For Non-Flexible Savers
If you are over 60 but have not yet flexibly accessed your pension (meaning you have only taken your tax-free cash, or have not taken anything at all), you remain under the Standard Annual Allowance. [cite: 3, 4, 7 (from step 1)]
- Standard AA Limit 2025/2026: This limit is £60,000 for the 2025/2026 tax year. [cite: 3, 4, 7 (from step 1)]
- Carry Forward: Crucially, those under the Standard AA can still utilise the 'carry forward' rule, allowing them to use unused allowance from the previous three tax years, potentially enabling contributions far in excess of £60,000 in a single year. This option is unavailable once the MPAA is triggered.
Summary of Key 2025/2026 Pension Entities and Limits
Navigating these limits requires strategic planning. The focus has decisively shifted from a single large lifetime limit to managing multiple, smaller annual allowances and tax thresholds. The key entities to monitor for the 2025/2026 tax year are:
| Financial Entity | 2025/2026 Limit/Rate | Relevance for Over 60s |
|---|---|---|
| Lump Sum Allowance (LSA) | £268,275 | Maximum total tax-free cash (PCLS) you can take. |
| Lump Sum and Death Benefit Allowance (LSDBA) | £1,073,100 | Maximum tax-free amount for lifetime and death benefits. |
| Money Purchase Annual Allowance (MPAA) | £10,000 | Annual contribution limit once flexible withdrawals start. |
| Standard Annual Allowance (AA) | £60,000 | Annual contribution limit if no flexible withdrawals have been taken. |
| Personal Allowance (PA) | £12,570 | Amount of income (including pension) that is tax-free. |
| Basic Rate Income Tax | 20% | Rate applied to most pension income after the PA is used. |
| Full New State Pension (Approx.) | £11,973 p.a. | Uses up nearly all of the Personal Allowance. |
The core takeaway for anyone over 60 is that while there is no maximum limit on the income you can take from your Flexi-Access Drawdown, the taxation of that income is the effective constraint. Furthermore, the decision to take flexible income is a permanent one that severely restricts your future pension contributions via the £10,000 MPAA. Seeking professional financial advice is highly recommended to optimise your withdrawal strategy against these critical 2025/2026 allowances.
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