The Lifetime Allowance Abolished: What Changed in April 2024

The LTA was replaced by two new allowances:

The Lump Sum Allowance (LSA)

The Lump Sum Allowance is £268,275. This represents the maximum total of:

• Pension Commencement Lump Sums (PCLS) — the 25% tax-free cash taken at crystallisation
• Uncrystallised Funds Pension Lump Sums (UFPLS) — the tax-free 25% portion of each UFPLS payment
• Trivial commutation lump sums and certain other tax-free lump sums

Note: £268,275 is precisely 25% of the old standard LTA (£1,073,100). So for a pension pot of exactly £1,073,100, the Lump Sum Allowance represents the entire tax-free cash that could previously have been taken before the old LTA was breached.

Lump sums above the LSA are subject to income tax at the individual's marginal rate. The key difference from the old LTA system is that there is no special 55% charge — excess lump sums are simply taxed as income.

For most pension holders with pots below £1,073,100, the practical impact of the LSA is the same as the old rule: they take 25% tax-free. For those with larger pots, the LSA cap means the effective tax-free fraction is below 25%.

The Lump Sum and Death Benefit Allowance (LSDBA)

The Lump Sum and Death Benefit Allowance is £1,073,100. This applies to:

• Tax-free lump sums paid on death before age 75 (both from crystallised and uncrystallised funds)
• The tax-free element of serious ill-health lump sums

Lump sum death benefits above the LSDBA (and before age 75) are subject to income tax at the recipient's marginal rate. After age 75, all lump sum death benefits are subject to income tax regardless of amount.

For individuals who had partially crystallised their pension before April 2024 and used part of their LTA, a Transitional Tax-Free Amount certificate mechanism was put in place to track the tax-free cash already used against the new LSA. Essentially, if you crystallised pension benefits before April 2024, the tax-free cash already taken counts against the £268,275 LSA for future events.

This can affect those who crystallised large sums before 2024 and assumed they had their full LSA remaining.

The mechanism matters because of what happens in its absence. Where no certificate has been obtained, a scheme administrator cannot see what you actually took; it must fall back on a standard calculation that assumes tax-free cash was drawn at the usual proportion of the allowance used. For anyone whose actual position differs from that assumption, the default overstates what has been consumed and understates what remains. The people most affected are the ones who took less tax-free cash than the standard assumption implies — someone who crystallised a defined benefit pension with a small or nil lump sum, or who took a scheme-specific lump sum that does not map onto the standard fraction. The default treats them as though they had taken the usual quarter, and the difference is allowance they are entitled to but will not be given.

Two practical points follow. The certificate has to be applied for, through the scheme or to HMRC directly, and the window for doing so was time-limited — applications were due by April 2025 in most cases, though administrators had further time to process them. And the certificate is not automatically to your advantage: it replaces an assumption with the facts, so where the facts are worse than the assumption, obtaining one leaves you with less allowance rather than more. That is why the calculation should be run before an application is made rather than after. See pension lump sum allowances and the pension commencement lump sum guide.

It is worth being clear about the limits of the reform, because "the Lifetime Allowance has been abolished" is often heard as "the constraints have gone".

Contributions are still limited. The annual allowance continues to cap what can be paid into registered pension schemes each year with tax relief, with tapering for higher earners and the ability to use carry-forward where earlier years' allowance is unused. See our guides to the annual allowance and carry-forward.

Flexible access still restricts future funding. Once a defined contribution pension has been flexibly accessed, the money purchase annual allowance applies and limits further money purchase contributions — a point that matters for anyone who intends to keep working and contributing after drawing benefits. See the money purchase annual allowance.

Income is still taxed as income. Removing a penal charge on excess funds does not make the fund tax-free. Everything beyond the tax-free element is taxable when drawn, at the rate applicable to the individual — which for a non-resident depends on the treaty position as well as UK rules.

Tax-free cash is still capped. The lump sum allowance does the job the old allowance used to do at the point of taking cash. What changed is the consequence of exceeding it, not the existence of a ceiling. See pension lump sum allowances.

The abolition of the Lifetime Allowance and the introduction of the new LSA and LSDBA framework require a review of existing pension strategies, particularly for those with large pots or legacy protection regimes. Global Investments helps clients understand what has changed and how to optimise their pension planning in the new environment.

Whether you need a post-abolition pension review, clarity on whether your protection is still relevant, or advice on your drawdown strategy in light of the new rules, our specialists are here to help.

Contact us to arrange a post-LTA pension review.