What Is the Lifetime Allowance Pension?

What Is the Lifetime Allowance Pension?

The Lifetime Allowance (LTA) was a long-standing limit on how much you could save into your pension tax-efficiently over your lifetime. If your pension savings exceeded this limit, you faced a hefty tax charge on the excess.

However, as of 6 April 2023, the Lifetime Allowance charge has been removed, and from 6 April 2024, the Lifetime Allowance itself was abolished entirely. Despite this, there are still important rules in place that affect how much you can take tax-free from your pension — particularly around lump sums.

This guide explains what the Lifetime Allowance was, what’s changed, what limits now apply, and what it means for your retirement planning.

What was the Lifetime Allowance?

The Lifetime Allowance (LTA) was a cap on the total value of your pension savings you could build up without incurring an additional tax charge.

Before its abolition, the LTA for the 2022/23 tax year was £1,073,100. If your pension pots exceeded this amount when you started to draw benefits (via drawdown, annuity, or lump sum), you could be taxed on the excess — sometimes up to 55%.

It applied across all registered UK pension schemes, including:

• Workplace defined contribution pensions

• Personal pensions and SIPPs

• Defined benefit (final salary) pensions — calculated using a formula

• Some overseas pensions if you had UK tax relief on contributions

What changed from April 2023?

From 6 April 2023, the government:

• Removed the Lifetime Allowance tax charge (but the allowance itself still existed for a time)

• Allowed those with pension savings over the previous limit to take benefits without penalty, subject to new rules on tax-free lump sums

From 6 April 2024, the Lifetime Allowance was abolished entirely, meaning:

• There is now no overall cap on how much you can save into pensions tax-efficiently

• You will no longer be taxed for exceeding the old LTA threshold

• However, limits still apply to the tax-free lump sum you can take (more on this below)

What has replaced the Lifetime Allowance?

While the LTA is gone, it has been replaced with new lump sum limits:

1. Lump Sum Allowance (LSA)

• This limits how much of your pensions you can take tax-free

• The standard LSA is £268,275, which is 25% of the former LTA (£1,073,100)

• Any tax-free cash above this amount will be subject to income tax

If you had Lifetime Allowance protection in place from previous rules (e.g. Fixed or Individual Protection), your LSA may be higher.

2. Lump Sum and Death Benefit Allowance (LSDBA)

• This is the total amount that can be paid tax-free as lump sums during your life or on death

• The standard LSDBA is £1,073,100

These limits are still important for higher earners, wealthy pension savers, and those who die before age 75 with large uncrystallised pensions.

Does this mean there are no pension savings limits?

Not quite — while the lifetime cap is gone, other rules still restrict tax-efficient pension saving:

 Annual Allowance

• You can still only contribute up to £60,000 per tax year, or 100% of your earnings (whichever is lower), across all your pensions

• Exceeding this may result in a tax charge, unless you can use carry forward allowances from the past 3 years

 Money Purchase Annual Allowance (MPAA)

• If you've flexibly accessed your pension (e.g. drawdown), your annual allowance may reduce to just £10,000 per year

These rules are separate from the LTA but continue to play a major role in pension tax planning.

Does this affect how much tax-free cash I can take?

Yes. Although the LTA is gone, the amount of tax-free cash you can take is still capped.

You can normally take:

• 25% of your pension pot, up to a maximum of £268,275 (the Lump Sum Allowance)

• If you had LTA protection, your personal limit may be higher

• Any excess is taxed as income when withdrawn

Should I still worry about large pensions?

Even without the LTA, there are still reasons to manage large pensions carefully:

• Income tax still applies when you draw your pension (except for the tax-free lump sum)

• Taking large withdrawals could push you into a higher tax bracket

• Inheritance planning may be affected — though pensions can still be passed on tax-free in many cases if you die before age 75

• If you’ve previously applied for LTA protection, you need to keep that documentation and be aware of how it affects your current limits

It’s a good idea to speak to a regulated financial adviser if your pension savings are approaching or exceed £1 million.

Who benefits from the LTA abolition?

 Higher earners – Can now grow larger pensions without triggering the 55% LTA charge
 People with strong investment returns – No longer penalised for pots growing above the old threshold
 Younger savers – Have more long-term pension headroom
 SIPP and workplace pension holders – More freedom to consolidate and grow without cap concerns

Final thoughts

The abolition of the Lifetime Allowance has removed one of the biggest barriers to saving more into your pension — especially for higher earners and long-term savers. But it’s not a free-for-all. Tax still applies on pension income, and new limits on tax-free lump sums mean careful planning is still essential.

If your pension savings are growing strongly, or you’ve held protections from previous LTA rules, it’s worth reviewing your position and possibly speaking to a pensions specialist to make sure you maximise the benefits without falling foul of other limits.