7 Crucial UK Pension Withdrawal Limits For Over 60s In 2025: What You Must Know Now
The landscape of UK pension withdrawals for individuals over 60 is governed not by a single limit, but by a complex web of allowances and tax rules that have been significantly reformed in recent years. With the 2025/2026 tax year in full swing, understanding these limits is essential to avoid unexpected tax bills and maximise your retirement income. The biggest shift remains the abolition of the Lifetime Allowance (LTA), replaced by two new, critical lump sum limits that directly affect how much tax-free cash you can take.
For those aged 60 and over, who are now well within the window of accessing their private pensions (currently from age 55, rising to 57), the key focus is on managing the tax implications of withdrawals. This article breaks down the seven most crucial limits and allowances for the 2025/2026 tax year, ensuring you have the most current information to make informed financial decisions about your pension pot.
The Seven Critical Pension Withdrawal Limits and Allowances for 2025/2026
While the UK’s Pension Freedoms legislation allows for unlimited withdrawals from a Defined Contribution (DC) pension pot from age 55/57, it is the tax rules surrounding these withdrawals that create the effective limits. Exceeding these allowances triggers tax charges that severely reduce the net amount you receive.
1. The Lump Sum Allowance (LSA): The Tax-Free Cash Cap
The most direct "withdrawal limit" for over 60s in 2025/2026 is the new Lump Sum Allowance (LSA). This allowance replaced the tax-free part of the former Lifetime Allowance (LTA) and dictates the maximum amount of tax-free cash you can take from all your pensions during your lifetime.
- LSA Limit 2025/2026: £268,275.
- What it Means: This figure represents 25% of the previous £1,073,100 Lifetime Allowance. You can still take up to 25% of your pension pot tax-free, but the total amount across all your pensions cannot exceed £268,275, unless you hold specific Lifetime Allowance protections.
- Impact on Over 60s: Every tax-free lump sum (PCLS) or tax-free element of a partial withdrawal (UFPLS) taken after April 2024 counts against this allowance. Once you hit the £268,275 limit, any further lump sums will be taxed at your marginal rate of income tax.
2. The Lump Sum and Death Benefit Allowance (LSDBA): The Total Tax-Free Ceiling
The Lump Sum and Death Benefit Allowance (LSDBA) is a broader limit introduced alongside the LSA. It limits the total amount of tax-free lump sums that can be paid to you during your lifetime and as a death benefit to your beneficiaries.
- LSDBA Limit 2025/2026: £1,073,100.
- What it Means: This is the same figure as the former Lifetime Allowance. It is the maximum amount that can be paid out as a tax-free lump sum during your life or as a tax-free death benefit if you die before age 75.
- Impact on Over 60s: For most retirees, this is the effective upper limit on the total value of their pension savings that can be accessed without incurring a tax charge on death. It is vital for estate planning.
3. The Money Purchase Annual Allowance (MPAA): The Re-Contribution Limit
The Money Purchase Annual Allowance (MPAA) is arguably the most restrictive "withdrawal limit" for over 60s who are still working and want to continue saving into a pension. It is triggered when you flexibly access your pension pot, for example, by taking an Uncrystallised Funds Pension Lump Sum (UFPLS) or flexible income from drawdown.
- MPAA Limit 2025/2026: £10,000.
- What it Means: Once triggered, your annual contribution limit for Defined Contribution (DC) pensions drops from the standard Annual Allowance of £60,000 down to just £10,000.
- Impact on Over 60s: If you plan to semi-retire or keep working and contributing to a pension, triggering the MPAA with a flexible withdrawal severely limits your ability to receive tax relief on future contributions.
4. The Standard Annual Allowance (AA): The Contribution Cap
While technically a contribution limit, the Annual Allowance (AA) affects future withdrawals by capping how much you can save tax-efficiently. This is the main limit for those over 60 who are still working full-time or part-time.
- AA Limit 2025/2026: £60,000.
- What it Means: You can contribute up to £60,000 or 100% of your relevant earnings (whichever is lower) into your pension and receive tax relief, provided the MPAA has not been triggered.
- Tapered Annual Allowance (TAA): High earners are subject to the TAA. If your 'threshold income' exceeds £200,000 and your 'adjusted income' exceeds £260,000, your AA is reduced (tapered) down to a minimum of £10,000.
Tax Implications: The Real Withdrawal Restriction
Beyond the specific pension allowances, the most significant "limit" on your withdrawals is the UK income tax system. Once you have taken your tax-free lump sum (PCLS), all subsequent income withdrawals are taxed at your marginal rate.
5. Personal Allowance (PA) Threshold
Your Personal Allowance is the amount of income you can receive each year without paying any income tax. This is the first layer of protection for all your retirement income, including pension withdrawals and State Pension payments.
- PA Limit 2025/2026: £12,570.
- What it Means: The first £12,570 of your total income (salary, State Pension, private pension income, etc.) is tax-free. The PA is reduced by £1 for every £2 of adjusted net income over £100,000.
6. Income Tax Bands (Marginal Rates)
The amount of tax you pay on your pension withdrawals depends entirely on which income tax band you fall into. This is the mechanism that restricts large, unplanned withdrawals.
- Basic Rate (20%): Applies to taxable income between £12,571 and £50,270.
- Higher Rate (40%): Applies to taxable income between £50,271 and £125,140.
- Additional Rate (45%): Applies to taxable income above £125,140.
- Strategy: Over 60s should aim to manage their Flexi-Access Drawdown (FAD) withdrawals to stay within the Basic Rate band (£50,270) to avoid paying 40% or 45% tax on their retirement income.
The State Pension and Other Age-Related Factors
7. State Pension Age and Rate
While not a withdrawal limit on your private pension, the State Pension is a guaranteed income stream that must be factored into your overall retirement income planning, especially for those over 60.
- New State Pension (NSP) Full Rate 2025/2026: £230.25 per week (approximately £11,973 per year).
- State Pension Age (SPA): The SPA is currently 66 for most people. It is scheduled to increase to 67 between 2026 and 2028.
- Impact on Over 60s: The NSP amount uses up a large portion of your £12,570 Personal Allowance. This means that if you receive the full NSP, you only have approximately £597 of your PA remaining before any private pension withdrawals start being taxed at the 20% Basic Rate.
Key Entities and Allowances at a Glance (2025/2026)
Understanding these specific financial entities is the key to navigating your retirement income strategy.
- Lump Sum Allowance (LSA): £268,275
- Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100
- Money Purchase Annual Allowance (MPAA): £10,000
- Standard Annual Allowance (AA): £60,000
- Tapered Annual Allowance (TAA) Threshold: £260,000 (Adjusted Income)
- Personal Allowance (PA): £12,570
- New State Pension (NSP) Full Rate: £230.25 per week
- Basic Rate Tax Band: £12,571 to £50,270
- Pension Access Age: 55 (rising to 57)
- Pension Freedoms: Confirmed (Flexi-Access Drawdown, UFPLS)
Final Considerations for Over 60s: Strategy and Planning
For individuals over 60, retirement planning in 2025/2026 is a balancing act between accessing tax-free cash and managing taxable income. The main withdrawal limits are tax-driven, not rule-driven.
Tax-Smart Withdrawal Strategy: Prioritise taking your tax-free cash (PCLS) up to the LSA limit of £268,275, as this is the most tax-efficient way to access your funds. Then, carefully manage your taxable income withdrawals (Flexi-Access Drawdown) to keep your total income (including State Pension) below the Higher Rate tax threshold of £50,270.
The MPAA Trap: If you are still working and want to continue making substantial pension contributions, avoid triggering the MPAA by taking only your tax-free lump sum and not any taxable income from your pot. Once triggered, the £10,000 limit is permanent.
Non-Pension Cash Limits: It is worth noting that some banks and ATM providers have introduced their own internal limits on daily cash withdrawals, which, while not a government "pension limit," can affect over 60s accessing cash. These typically range from £300 to £500 per day at an ATM, and higher limits for in-branch withdrawals, but are separate from pension tax rules.
Consulting a regulated financial adviser is highly recommended to ensure you navigate the new LSA and LSDBA rules correctly and optimise your tax position for the 2025/2026 tax year.
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