Following the abolition of the Lifetime Allowance (LTA) on 6 April 2024, which previously limited the amount of tax-efficient pension benefits you could build up, the Government introduced two new allowances which cash sums will be assessed against: the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance.
What is the Lump Sum Allowance?
The Lump Sum Allowance (LSA) is the new limit on the amount of tax-free cash you can receive in your lifetime and has been set at £268,275. It was brought in following the abolition of the Lifetime Allowance (LTA) on 6 April 2024.
Will the Lump Sum Allowance affect me?
The Lump Sum Allowance is only likely to affect you if the total value of all tax-free cash lump sums from all your pension arrangements are more than £268,275.
What is the Lump Sum and Death Benefits Allowance?
The Lump Sum and Death Benefits Allowance (LSDBA) is the new limit on the amount of tax-free cash that can be paid in life and death and has been set at £1,073,100. It was brought in following the abolition of the LTA on 6 April 2024.
Will the Lump Sum and Death Benefits Allowance affect me?
The Lump Sum and Death Benefits Allowance will usually only affect your beneficiaries if the total of lump sums payable from all registered pension schemes on your death is likely to exceed £1,073,100.
What else do I need to know?
The new allowances are overall allowances that apply across all of your registered pension arrangements.
If any cash lump sums that you take or that are paid on your death exceed either of the new allowances, the recipient will be taxed at their marginal rate of Income Tax.
If you think these changes will affect you or if you’ve applied for and hold any valid HMRC tax free lump sum protections, you should take financial advice from an FCA regulated adviser. You can find one in your local area by visiting the following website: www.moneyhelper.org.uk/retirement-adviser-directory – bear in mind you’ll need to pay for any regulated advice.
Tax-free cash limit or Pension Commencement Lump Sum (PCLS)
This is currently the amount of tax-free cash you can take from your pension savings. The Pension Commencement Lump Sum is normally restricted to 25% of your pension savings. Although not an issue for most people, the PCLS limit will be frozen at 25% of the new Lump Sum Allowance level (which means it will be capped at £268,275) from April 2024. Anyone with a protected right to a higher PCLS is expected to retain this right.