The £1m pension problem: Why you may not get 25% tax-free cash

The pension lifetime allowance has been axed, but there's a sting in the tail. Savers with large pensions could see their tax-free cash shrunk to just 10%. We explain what’s happening and what action you should take

Worried businesswoman with head in hand while looking at laptop in home office
Pension savers could see their tax-free cash shrunk from 25% to just 10% due to new rules
(Image credit: Getty Images)

Pension savers risk losing thousands of pounds of tax-free cash due to lifetime allowance reforms that came into effect in April.

Savers typically receive 25% of their pension pot tax-free, but this could be reduced to just 10% over the next decade.

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Row 0 - Cell 0 Pension pot valueMaximum tax-free cashTax-free cash percentageMaximum tax-free cash after inflation**Tax-free cash percentage after inflation**
Today £1,073,100 £268,27525% £268,27525%
5 years’ time £1,436,050* £268,27519% £231,41616%
10 years’ times £1,921,759* £268,27514% £199,62210%
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Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.