Skip to main content
The Pension Lifetime Allowance
Before its abolition in April 2024, the Pension Lifetime Allowance (LTA) was a limit on the amount of pension benefits an individual could accumulate over their lifetime without incurring an LTA tax charge.
History of the Lifetime Allowance
The LTA was varied many times since its introduction in April 2006:
| Tax Year | Standard Lifetime Allowance |
| 2023/2024 | £1,073,100 (1) |
| 2022/2023 | £1,073,100 |
| 2021/2022 | £1,073,100 |
| 2020/2021 | £1,073,100 |
| 2019/2020 | £1,055,000 |
| 2018/2019 | £1,030,000 |
| 2017/2018 | £1,000,000 |
| 2016/2017 | £1,000,000 |
| 2015/2016 | £1,250,000 |
| 2014/2015 | £1,250,000 |
| 2013/2014 | £1,500,000 |
| 2012/2013 | £1,500,000 |
| 2011/2012 | £1,800,000 |
| 2010/2011 | £1,800,000 |
| 2009/2010 | £1,750,000 |
| 2008/2009 | £1,650,000 |
| 2007/2008 | £1,600,000 |
| 2006/2007 | £1,500,000 |
(1) The government has removed the lifetime allowance charge from 6 April 2023.
Source: Royal London, 2024
An individual would be ‘tested’ against this allowance at various points in time, such as when they begin taking certain benefits, or when reaching the age of 75 for example.
On a crystallisation event (which happens when you start to access your pension either by drawing an income or cashing it in), if there was an excess above the lifetime allowance, there would be a charge of 25% if an individual chose to keep the excess in their pension and use it to provide them with an income, or a 55% charge if taken immediately as a lump sum. However, the key difference was that income tax would also have to be paid on any income withdrawals, and if the individual was a higher rate taxpayer, for example, then there would be a combination of a 25% charge on the excess fund and a 40% income tax on the pension income paid out which equalled a 55% charge overall.
Coinciding with the abolition of the LTA we have seen two new allowances introduced on 6 April 2024.
The Lump Sum Allowance limits the amount of tax free lump sum withdrawals you can take from your pension plans during your lifetime. The maximum amount which you can take will typically be £268,275, although some people may be able to take a higher amount; more on this later.
The Lump Sum and Death Benefit Allowance restricts the value of tax free lump sum benefits which can be paid to any beneficiaries who inherit your pension if you die before your 75th birthday. For most people this limit will be £1,073,100.
It was possible to register for Lifetime Allowance Protection if you had built up, or anticipated building up, pension funds which would exceed the LTA. Lifetime Allowance Protection took many forms over the years as a new type of Protection was made available for eligible pension savers, changing whenever the LTA was reduced.
So what does this mean going forward?
Although the LTA is no longer with us, if you did apply for one of the many forms of Lifetime Allowance Protection, you will be able to take a higher level of tax free cash from your pension plans than everyone else if the combined value of your pension funds exceeds £1,073,100.
The maximum tax free lump sum you will be able to take will be the same as your entitlement under the old LTA regime. For example, if you have Fixed Protection 2012, your Lump Sum Allowance will be £450,000.
In a similar fashion, for most people with one of the many forms of Lifetime Allowance Protection their Lump Sum and Death Benefit Allowance will be increased to match the level of protection provided by their certificate. So, someone who has Fixed Protection 2012 will have a Lump Sum and Death Benefit Allowance of £1,800,000.
If you do not have any Lifetime Allowance Protection and the combined value of your pension funds is more than £1,073,100, any excess benefits paid to you during your lifetime or to your beneficiaries as a lump sum on your death, will be taxed as income in the same way that your salary or profits are taxed during your working life.
So, although the LTA is no longer with us, and the rates of tax charged have changed, there is still the potential for tax penalties to be applied if you have a large pension fund.
If you would like to know more about these new allowances and how they affect you it may be worth getting financial advice or getting in touch with your Financial Adviser.
This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.
Pensions are a long term investment and any income derived from them is not guaranteed, the value of these investments can go down as well as up and you may not get back what you originally invested. The Financial Conduct Authority (FCA) does not regulate tax advice.