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The lifetime allowance was abolished on 6 April 2024
The lifetime allowance was abolished on 6 April 2024

The lifetime allowance is how much you can build up in pension savings over your lifetime while still enjoying the full tax benefits.

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Written by Smart Pension Support
Updated over a week ago

The lifetime allowance is how much you can build up in pension savings over your lifetime while still enjoying the full tax benefits.

This is a significant change and will impact you in different ways depending on whether you have already taken some or all of your pension savings or whether you plan to take your pension savings in the future.

Key changes – at a glance

  • The lifetime allowance, and the tax structures that go with it, were abolished on 6 April 2024

  • All pensions are now taxed under the current income tax legislation and system, but there will be two new allowances (the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance), which will limit the amount of tax-free lump sums that can be paid from a member’s registered pension schemes

  • A new enforcement system has been introduced to implement these new allowances and other pension tax system changes

  • The impact on individual members will, in the main, depend on whether they have taken any lump sum benefits before 5 April 2024, or they will take some, or all, of their lump sum benefits after 6 April 2024

  • There are transitional arrangements in place so that members who already have a right to a lump sum benefit which exceeds the new allowances will be able to keep their higher entitlements

  • A deadline of 5 April 2025 applies for those applying for fixed protection 2016 or individual protection 2016

A closer look at the two new allowances

With the abolition of the lifetime allowance, two new allowances have been introduced. These new allowances have been introduced to limit the total amount of tax-free sums that members can receive from their pension savings.

Lump sum allowance (LSA) - this is £268,275 and it covers the pension commencement lump sum (PCLS), and the tax-free portion of uncrystallised funds pension lump sum (UFPLS).

Lump sum and death benefit allowance (LSDBA) - this is £1,073,100 and covers all the lump sums under the LSA and certain death benefits and other lump sums that are payable tax-free (such as serious ill-health lump sums).

The new allowances and tax changes effective from 6 April 2024 mean you should carefully consider how you take your pension savings. Before you decide what you want to do, make sure you seek help and guidance.

Things to consider

  • Have you already taken any tax-free lump sums from registered pension schemes before 6 April 2024 and how will this impact any lump sums you are due to take after that date?

Impartial guidance and support

Pension Wise (now part of the MoneyHelper service)

Has lots of useful information about how you can turn your pension savings into retirement income. You can also book a Pension Wise appointment to speak to someone about your retirement options in detail.

You can also call the MoneyHelper service on 0800 011 3797 for more general information.

Financial advice

You can also seek financial advice if you would like to. Please remember that financial advisers usually charge you for their services. We recommend that you use the MoneyHelper directory to help you find a local financial adviser that’s right for you.

Please note that Smart Pension is not authorised to provide advice to members.

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