Since 6 April 2024, the Lifetime Allowance has been removed from law. Historically, the Lifetime Allowance referred to the amount of pension savings someone could normally build up in pension schemes during their lifetime without paying additional tax. However, since 6 April, the Lifetime Allowance has been replaced by two new allowances – the ‘Lump Sum Allowance’ (LSA) and the ‘Lump Sum and Death Benefit Allowance’ (LSDBA). These two new allowances limit the amount of tax-free lump sums that can be paid (either when someone first takes pension benefits or following their death), with any lump sums in excess of the allowances usually being subject to income tax. For most, the LSA is £268,275 and the LSDBA is £1,073,100. Further details on these two new allowances can be found in this leaflet.

As well as the two new allowances mentioned above, there are other pension tax allowances that pension savers should be aware of, including:

• The Annual Allowance, which is currently £60,000 a year and is the amount of pension savings someone can usually build up in pension schemes during a tax year before they are at risk of a special tax charge called the ‘Annual Allowance charge’. Whether someone will have a charge to pay will also depend on how much unused Annual Allowance they have from the previous three tax years.
• The highest earners (those with incomes over £200,000) may be subject to a ‘taper’ and a much lower Annual Allowance. The tapered Annual Allowance currently reduces on a sliding scale from £60,000 down to a minimum of £10,000 for the 2025/26 tax year.
• The Money Purchase Annual Allowance, which is currently £10,000 a year and applies to individuals who have ‘flexibly accessed’ their pension savings. Someone may have flexibly accessed their pension savings if they have taken a taxable benefit from their pension pot (which might be ‘income drawdown’ or a lump sum where part of the benefit is subject to income tax).

Please note that these allowances apply in aggregate across all of an individual’s pension arrangements.

Where can I find out more?

You can read more about pensions tax on MoneyHelper’s website: www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions

Pensions tax can be complicated, and you should consider whether to seek professional advice from a tax or financial adviser.