A potted summary

  • The Lifetime Allowance (LTA) is abolished as of 6th April 2024
  • The LTA is replaced with two new allowances – the lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA)

What is the LTA?

The LTA is an allowance, set by the government, above which pensions were heavily taxed when you came to withdraw (or at certain other ‘crystallisation events’, such as death). You could have more than the maximum number in your pension, but you would have been penalised on any amount above the LTA.

What’s happening to the LTA?

It was announced in the 2023 Spring Budget that the LTA would be abolished from 6th April 2024, but LTA tax charges would be abolished from April 2023.

Following its retirement, the LTA has been replaced by two new allowances – the lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA).

What is the LSA?

The LSA is a limit to the total amount you can withdraw as a lump sum without paying tax. The LSA for most people is £268,275. Any tax-free lump sums taken from your pension that exceed your LSA will be taxed at the rate of income tax you pay.

The categories of payments you can take from your pension that will use up your LSA include:
Pension commencement lump sums (known as tax-free cash lump sum)
The tax-free element of an Uncrystallised Funds Pension Lump Sum

What is the LSDBA?

The LSDBA is a limit to the total amount of tax-free cash you can withdraw from your pension across your lifetime and when you die. The LSDBA for most people is £1,073,100.

The categories of payments you can take from your pension that will use up your LSDBA include:

  • Pension commencement lump sums
  • The tax-free element of an Uncrystallised Funds Pension Lump Sum
  • Tax-free Serious Ill Health Lump Sums
  • Non-taxable lump sum death benefits

How it works

Typically, you won’t pay tax on up to 25% of your lump sum withdrawal. So let’s say you wanted to withdraw £100,000 from your pension (of which £25,000 would be paid tax-free). Under the new rules, £25,000 of the £100,000 would use up your allowances. Meaning you’d have £243,275 of your LSA and £1,048,100 of your LSDBA left.

Overseas Transfer Allowance

If you were to transfer your pension abroad, the Overseas Transfers Allowance (OTA) would apply. For most people, the OTA is equal to your LSDBA – £1,073,100.