Changes to the pension lifetime allowance

The complete abolition of the Lifetime Allowance (LTA) from April 2024 has simplified pension planning for many high earners. However, it has been replaced by two new main limits on the amount of tax-free lump sums that can be paid from a pension.

These are the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100). Understanding how these interact with your existing pension pots is vital for long-term tax efficiency.

The Lump Sum Allowance (LSA)

The LSA limits the total amount of tax-free cash you can take across all your pension schemes during your lifetime. For most people, this limit is set at £268,275 (which is 25% of the old £1,073,100 Lifetime Allowance). Once you have taken this amount in tax-free cash, any further withdrawals from your pension will be subject to Income Tax at your marginal rate.

The Lump Sum and Death Benefit Allowance (LSDBA)

The LSDBA limits the amount of tax-free lump sums that can be paid out both during your lifetime and upon your death (if you die before age 75). This limit is set at £1,073,100. Any lump sum death benefits paid in excess of this allowance will be subject to Income Tax in the hands of the beneficiary.

Existing protections

If you previously applied for Lifetime Allowance protections (such as Primary, Enhanced, Fixed, or Individual Protection), these protections will still be relevant. They may give you a higher personal LSA and LSDBA than the standard limits. It is crucial to retain your protection certificates and factor them into your retirement planning.