Two for one replacement for pensions lifetime allowance

The pensions lifetime allowance (LTA) has been abolished, meaning there is no longer any restriction on how much you can hold in a tax-favoured pension scheme without triggering an extra tax charge. Instead, two new allowances will limit tax-free cash benefits on retirement and on death.

The ending of the LTA followed concern that high earners, in particular doctors, were reducing their hours or taking early retirement because of high tax charges on their pensions.

The new lump sum allowance is set at 25% of the pension pot, normally up to a maximum of £268,275. As before, the lump sum does not have to be withdrawn all in one go, but once cumulative withdrawals reach the maximum, any further payments are taxable in full. You can draw a lump sum from age 55, rising to 57 from April 2028.

The lump sum and death benefit allowance (LSDBA) is £1,073,100. This is the maximum taxfree lump sums that you and your beneficiaries can receive from your pension. However, if a pension was first accessed before 6 April 2024 and you die under age 75, the whole death benefit is tax free.

If you held a protected LTA, the amount of tax-free lump sum you can take is likely to be higher. If you are in this position it is important to get specific advice.

It is still possible to apply for Individual Protection 2016 and Fixed Protection 2016, thereby increasing the lump sum allowance to £312,500 and the LSDBA to £1,250,000. Individual Protection 2016 is only available to people whose pension savings at 5 April 2016 had a value of over £1 million. Fixed protection 2016 has no minimum pension value but you must not have paid pension contributions since 6 April 2016. For both these protections you must apply by 5 April 2025.