Lifetime Allowance (LTA)
The government abolished the LTA from 6 April 2024 and replaced it with lump sum allowances. There is no longer a specific limit on how much pension savings you can build up.
The LTA was the total amount of pension you could build up from all your pension savings over your lifetime before you had to pay a tax charge. This amount did not include any state pension, state pension credit or any partner's or dependant's pension you are entitled to.
You can no longer apply for LTA protection unless you are affected by the McCloud remedy.
The new lump sum allowances only limit the overall tax-free payment of relevant lump sums and don't consider annual pensions.
Types of lump sum limits
Lump Sum Allowance (LSA)
The LSA is £268,275. The LSA is the amount of tax free lump sum you can take across all your pensions. If you have a valid lifetime allowance protection, the limit may be higher.
When you retire, you'll need to provide us with details of the pensions you have taken. We'll check whether you're within the LSA limit.
Lump sum and death benefit allowance (LSDBA)
The LSDBA is £1,073,100. The LSDBA is the maximum amount which can be paid from a pension through tax-free lump sum payments, during your lifetime and when you die.
Exceeding the limits
A relevant benefit crystallisation event (RBCE) happens when you are paid a relevant lump sum. At this time, Pension Services will run a check against the new lump sum allowance.
These limits won't affect most members. However, if you're a high earner or have a lot of LGPS membership in terms of the years that you've been in the scheme, you might be at risk of exceeding the limits.
If the total of all lump sums paid from UK pension schemes is more than one of these limits, you (or your personal representatives when you die) will have to pay extra tax.
Tax on any excess is charged at your marginal rate.
Transitional Tax-Free Amount Certificate (TTFAC)
A TTFAC details the relevant tax-free lump sums paid to an individual before 6 April 2024.
You may wish to consider applying for a TTFAC if all the following apply to you:
- you took a pension before 6 April 2024
- you took less than 25% of your pension pot as a tax-free lump sum
- you think that the new lump sum limits may affect you
Use the HMRC self-service tool to check if you can apply for a transitional tax-free amount certificate.
Seek financial advice if you are thinking of applying for a TTFAC. You could be worse off with the certificate than without it.
How to apply for a TTFAC
Complete the TTFAC application form.
