In March 2023, the Government announced that it would be removing the Lifetime Allowance (LTA) tax charge with effect from 6 April 2023, with the plan to remove the LTA altogether from 6 April 2024. This has now happened, and some new allowances for lump sum payments have been introduced.

What does this mean for you?

Most people wouldn’t have been affected by the LTA but, if you would have, the changes are good news: you can now save more for your retirement without incurring a tax charge.

There will, however, still be a limit on the amount of money you can take as a tax-free lump sum at retirement.

The new Lump Sum Allowance

You can take up to 25% of your pension savings as a tax-free lump sum, with the remainder taxed as income. Following the removal of the LTA, a Lump Sum Allowance (LSA) has been introduced which places an upper limit on the value of this tax-free lump sum.

This allowance has been set at 25% of the LTA figure at the time of its removal (£268,275). This is now the maximum lump sum you can receive from all your pension savings without a tax charge. If you exceed this limit, the amount over the limit will generally be taxed as income. Members with existing LTA protection may have a higher limit before they are liable to pay the additional tax.

The new Lump Sum and Death Benefit Allowance

There will also be a new Lump Sum and Death Benefit Allowance (LSDBA), set at £1,073,000. This limits the tax-free payments that can be made following someone’s death. The limit also applies in circumstances where, due to ill health, someone’s entire pension is converted to a single cash sum.

This limit will be reduced if the person has previously taken tax-free cash sums at retirement (like those covered by the LSA above).