The Lifetime Allowance has been abolished

Following last year’s Autumn Statement, the government confirmed that the Lifetime Allowance would be abolished on 6 April 2024. In its place, new allowances have been introduced that limit the amount you (and your beneficiaries) can take as tax-free lump sums.

What is the Lifetime Allowance?

The Lifetime Allowance was defined as: the total amount of pension benefits you can build up in your lifetime before you need to pay additional tax. If all your pension benefits together are worth more than £1,073,100, you have to pay tax on the amount above the limit.

On 6 April 2024, the Lifetime Allowance was abolished.

What are the new limits?

With the abolition of the Lifetime Allowance, the government has introduced three new limits on the amount that can be taken from your pension savings tax-free.

• The Lump Sum Allowance (LSA)

  The amount you can take in your lifetime either as tax-free lump sums or as the tax-free elements of uncrystallised funds pension lump sums (UFPLS)*, is limited to £268,275 (a quarter of the previous Lifetime Allowance of £1,073,100). It may be higher if you have HMRC protections (see below).

  Anything you take above your LSA will be taxed, with your overall income, at your marginal rate of income tax. Except where the total value of your benefits is very small, each time you take a tax-free lump sum, your available LSA will be reduced.

  *An UFPLS is a flexible way to take money from your pension, either entirely in one go or a bit at a time.

• The Lump Sum and Death Benefits Allowance (LSDBA)

  The total amount that can be taken as tax-free lump sums by you in your lifetime and by your beneficiaries after your death is limited to £1,073,100. It may be higher if you have HMRC protections (see below).

  Anything taken above the available LSDBA will be taxed at your or your beneficiary’s marginal rates of income tax. Any tax-free lump sums that have already been taken by 5 April 2024, and assessed against the LSA limit, will also reduce your available LSDBA. Tax-free serious ill health lump sums or lump sum death benefits will also reduce your available LSDBA.

• The Overseas Transfer Allowance (OTA)

  If you’re living overseas or are planning to move, you have the option to either leave your benefits in the Fund or to transfer it to a Qualifying Recognised Overseas Pension Scheme (QROPS), which is an overseas pension scheme that HMRC regards as eligible for transfer from pension schemes registered in the UK.

  The total amount you can transfer tax-free to a QROPS is limited to £1,073,100. It may be higher if you have HMRC protections (see below).

What are HMRC protections?

Since the Lifetime Allowance was introduced in 2006, high earners have been able to register for HMRC protections to fix their lifetime allowance and protect it from future reductions. More information about the different protections is available on the gov.uk website. If you have HMRC protections in place, your LSA, LSDBA and OTA may be higher.

Make the most of these changes

• Save more for your pension

  Now that the Lifetime Allowance has been abolished, you may wish to save more for your pension. The total amount you can contribute each tax year before you have to pay tax is limited by the Annual Allowance which is currently £60,000 a year (potentially reducing to £10,000 a year for high earners). If you’re still an active member of the Fund, you can make Additional Pension Contributions (APeCs). Log into your pension record to review or start making APeCs.

• Get financial advice

  If you need help understanding how these tax allowances apply to you, we recommend you get financial advice from an impartial FCA-regulated financial adviser. Use MoneyHelper's directory to find an adviser near you. If you’re over age 50, you can speak to Liverpool Victoria Financial Advice Service who may be able to provide advice at preferential rates arranged with the Trustee.

If you have any questions about your Fund benefits, please get in touch.