This is a tax-free cash payment made to a member of a pension scheme when they retire and start to take their pension benefits. With a money purchase scheme this can be up to 25% of the total fund, with the remainder used to buy an annuity. Members of final salary pension scheme s can usually also take part of their pension benefits as a tax free lump sum in return for a reduction in their pensions in payment. HMRC rules prevent this from being more than 1.5 times the member’s final salary or 2.25 times their pension.

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