Lifetime allowance frequently asked questions
Before 6 April 2024, the lifetime allowance limited the amount of pension benefits that could be built up without paying additional tax. This allowance was abolished from 6 April 2024. We've put together some frequently asked questions to help you understand the changes and how it might affect you.
What was the lifetime allowance (LTA)?
The lifetime allowance (LTA) was the maximum amount you could save into your pensions (workplace or personal) in your lifetime. If your pension savings were more than the LTA when you took them, a LTA charge was due on the amount over the lifetime allowance. The LTA charge was removed from 6 April 2023, and then completely abolished from 6 April 2024. From 6 April 2024 new allowances limit the amount of tax-free cash you can take from your pension savings.
What has replaced the LTA?
The LTA has been replaced with three different allowances:
- the lump sum allowance - £268,275
- the lump sum and death benefit allowance - £1,073,100
Both of these allowances limit the amount of tax-free benefits that can be paid.
There's also:
- the overseas transfer allowance - £1,073,100
A check is made against these allowances when benefits are paid. These allowances are reduced if you've taken any benefits between 6 April 2006 and 6 April 2024.
These allowances may be higher if you have lifetime allowance protection.
Where can I find the details of my allowance?
Ask your pension provider how much of your allowances you've used. If you have more than one pension, you need to add up what allowance you've used across all your pensions.
What happens if I don’t access my pension?
The longer you delay, the higher your potential retirement income might be, however this will depend on how much the investments your pension savings invest in grow. The value of your investments can fall as well as rise and you may not get back the amount invested. But this could affect your future tax bill and your entitlement to state benefits. Instead of delaying taking money from your pension, you might be able to retire gradually.
If you need help making decisions about your plan you should speak to a financial adviser. If you don't already have a financial adviser, you can find one in your area here.
What happens when I reach age 75?
There are no tests against the lump sum allowance or the lump sum and death benefit allowance at age 75. The benefits are tested against allowances when you take your benefits or any remaining pension savings are paid on your death.
Can I still retire early?
You can start taking money from your pension from age 55, increasing to 57 from 6 April 2028. If you're eligible to do so you can retire early, for example on the grounds of ill health or you have a Protected Pension Age (PPA).
This isn't impacted by changes to LTA and the introduction of new allowances.
What happens if I decide to transfer funds overseas?
An overseas transfer allowance (OTA) will also now apply if you chose to transfer your pension abroad.