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We Explain Everything You Need to Know About Pension Lifetime Allowance
Hoxton Blog • We Explain Everything You Need to Know About Pension Lifetime Allowance
Recent changes to UK pension limits affect how much you can build up and withdraw without unexpected tax charges. Understanding the new allowance framework helps you plan contributions, track entitlements, and time withdrawals more effectively.
This article highlights what has changed, what to review now, and the practical steps to take, before exploring the details and implications in the sections that follow.
Why Pension Lifetime Allowance Still Matters After Abolition
For many years, the pension lifetime allowance (LTA) set an upper limit on how much you could hold across UK-registered pension schemes without facing extra tax charges.
If the value of your pensions went over that limit when tested, the excess was taxed more heavily, which was a key concern for long-term savers and higher earners.
In April 2024, the UK removed the LTA from legislation and replaced it with new lump sum allowances that control how much tax-free cash you can take, but not the total size of your taxable pension income.
Understanding how the LTA used to work is still helpful, especially if you have older benefits or protections, and understanding the new rules is essential for planning contributions and withdrawals now.
Why Listen to Us?
Hoxton Wealth advises UK residents and expats on complex UK and international pension arrangements, including high-value SIPPs and legacy schemes affected by recent rule changes.
With hands-on experience guiding clients through the shift from the lifetime allowance to the new lump sum allowances, the team brings practical insight drawn from real planning decisions, not theory, to the guidance in this article.
What Was Pension Lifetime Allowance?
Hoxton Wealth advises UK residents and expats on complex UK and international pension arrangements, including high-value SIPPs and legacy schemes affected by recent rule changes.
With hands-on experience guiding clients through the shift from the lifetime allowance to the new lump sum allowances, the team brings practical insight drawn from real planning decisions, not theory, to the guidance in this article.
How Did the Pension Lifetime Allowance Work?
Historically, the LTA was set at different levels over time. It was introduced in 2006/07 at £1.5 million, increased to £1.8 million, and then reduced several times, eventually settling at £1,073,100 in its final form before abolition.
Some individuals held fixed or individual protections that locked in higher personal limits.
If the value of your pensions tested at a “benefit crystallisation event” (for example, when taking tax free cash or reaching age 75) exceeded your available LTA, the excess was subject to a lifetime allowance charge. In broad terms, the excess was taxed at:
- 55% if taken entirely as a lump sum, or
- 25% if used to provide taxable income, in which case income tax was also due when the income was paid.
Simple Example
If your LTA was £1,073,100 and your pension benefits were valued at £1,273,100 at a test, you would have £200,000 above the allowance. Under the old rules:
- Taking that £200,000 as a lump sum could have triggered a 55% LTA charge, leaving £90,000 net.
- Using it for income could have triggered a 25% charge on the £200,000 and then income tax as you drew it.
Because of these charges, many people considered strategies such as adjusting contributions, reviewing investment risk, or exploring transfers and retirement timing to manage LTA exposure.
What Replaces the Pension Lifetime Allowance In 2024?
From 6 April 2024, the LTA has been removed and replaced with new HMRC lump sum allowances. Rather than limiting the total size of your pension, the new system focuses on the tax-free part:
- Lump Sum Allowance (LSA)
This limits the total tax-free lump sums you can take during your lifetime. The standard LSA is £268,275 (25% of £1,073,100), although those with certain protections can have higher limits. - Lump Sum and Death Benefit Allowance (LSDBA)
This limits the total tax-free lump sums paid in your lifetime and on death. The standard LSDBA is £1,073,100, again with potential enhancements for protected individuals.
Some guidance also refers to a third allowance for specific serious ill health lump sums, but for most people, the key figures are the LSA and LSDBA. Lump sums above these allowances are still possible, but the excess is taxed at your marginal income tax rate.
Regular pension income is no longer tested against a lifetime cap and is simply taxed as income in the usual way. Age 75 tests for uncrystallised funds and drawdown pots have also been removed.
The abolition of the LTA therefore makes it easier to hold large pension pots without special lifetime charges, but there are still important limits on how much tax-free cash you can take.
How to Manage Your Pension Contributions Under the New Rules
Step 1: Assess Your Current Pension Pots
Start by building a complete picture of your existing pension arrangements. This is essential under the new framework, as past benefit events affect how much tax-free cash you can take in the future.
Gather up-to-date information on:
- Workplace defined contribution schemes
- Defined benefit or final salary schemes
- Personal pensions and SIPPs, including any International SIPPs if you live abroad
Request recent statements showing:
- Current fund values or accrued benefits
- Any benefits already taken
- Records of Lifetime Allowance tests or protections
If you have taken tax-free cash or crystallised benefits before April 2024, transitional rules apply. These may reduce your remaining Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA), even though the Lifetime Allowance itself has been abolished.
If you are an expat, include:
- UK pensions left with former employers
- Overseas arrangements that interact with UK tax rules, such as QROPS or international group pensions
Understanding how these schemes fit together is important before increasing contributions or planning withdrawals.
Case study:
Mark, age 55, had taken tax-free cash from one pension in 2021. When reviewing his position in 2024, he discovered that this reduced the amount of tax-free cash available from his remaining pensions under the new allowances.
Step 2: Understand the New Contribution Limits
Although the Lifetime Allowance has been removed, limits on contributions still apply.
Annual allowance
There is a yearly cap on pension contributions that receive tax relief. Most people can contribute up to the standard annual allowance, but this can be reduced:
- By tapering, if your income exceeds certain thresholds
- If you have already accessed flexible pension benefits
Carry forward
If you have unused annual allowance from the previous three tax years, you may be able to carry it forward and make higher contributions in the current year, subject to eligibility rules.
Tax relief
Within these limits, pension contributions usually receive income tax relief at your marginal rate, which remains a key feature of UK pension saving.
The removal of the Lifetime Allowance means there is no longer a single cap on total pension value. However, contributions still need to be planned with annual limits and future lump sum allowances in mind.
Step 3: Consider Whether to Increase Contributions
With the Lifetime Allowance no longer applying, some individuals may reassess how much they contribute, particularly if they were previously limiting pension saving due to LTA concerns.
Increase regular contributions
If your income and cash flow allow, you may increase contributions to workplace schemes, personal pensions, or SIPPs, staying within annual allowance limits.
Use employer schemes efficiently
Employer contributions are often the most valuable part of pension saving. Maximising these is typically the first priority before making additional personal contributions.
Review SIPPs and international options
For those who want greater investment control or who live abroad, SIPPs or International SIPPs may offer structural flexibility, though suitability depends on personal circumstances and tax position.
Consider lump sum allowances
Although the overall pension value is no longer capped, tax-free cash is still limited. If you are targeting a particular level of tax-free cash at retirement, it is important to consider how additional contributions today may affect future withdrawals under the LSA.
Case study:
Helen, a high-earning professional, had previously restricted pension contributions to avoid breaching the LTA. Following its removal, she reviewed her annual allowance position and adjusted contributions while modelling how much tax-free cash she might realistically access later.
Step 4: Monitor Your Pension Regularly
The new regime places greater emphasis on tracking what you take out, rather than how large your pension becomes.
Review values and projections
Check pension values annually and update retirement projections to reflect changes in contributions, investment performance, or retirement timing.
Track lump sums taken
Keep personal records of any tax-free lump sums or serious ill-health lump sums taken. These count toward the LSA and LSDBA. While scheme administrators track this, having your own records can be helpful if you have multiple pensions.
Adjust contributions as circumstances change
Changes in income, residency, or retirement plans may justify increasing, reducing, or pausing contributions over time.
Regular reviews are particularly important for those with multiple schemes or cross-border arrangements.
Step 5: Consider Professional Advice
The shift from a single Lifetime Allowance to a system of annual limits, lump sum allowances, and transitional rules has increased complexity, especially if you:
- Have built up large pension pots
- Hold Lifetime Allowance protections
- Have already taken benefits in different tax years
- Live or expect to live outside the UK
A regulated financial adviser can help you:
- Understand how the new rules apply to benefits already taken
- Coordinate contributions across schemes and tax years
- Plan the timing and structure of tax-free cash and income
- Align UK pension decisions with international retirement plans
This type of guidance is particularly relevant where past decisions interact with the new allowance framework and where mistakes may be difficult to reverse.
Best Practices for Managing Pension Contributions Effectively
- Start Early
Begin pension saving as soon as possible so contributions have more time to compound. - Maximise Employer Contributions
Ensure you receive the full employer contribution available and use matching schemes where offered. - Diversify Your Investments
Spread risk by using diversified funds or portfolios rather than concentrating on a single asset or sector. - Stay Within the Annual Allowance
Track contributions across all schemes to avoid unexpected annual allowance charges, particularly if your income is high. - Review Regularly
Revisit your pensions, lump sums taken, and retirement plans at least once a year and after major life changes.
Conclusion and Next Steps
The pension lifetime allowance used to be a central concern for UK savers with larger pensions, but from April 2024, it has been replaced by new lump sum allowances that focus on how much tax-free cash you can take, not how big your pot can grow. Annual contribution limits and good planning still matter, and existing protections and past benefits can affect how much tax-free cash you have left.
Hoxton Wealth helps clients understand how the new rules apply to their existing pensions, structure contributions through workplace schemes, SIPPs, and international solutions, and plan withdrawals that support long-term retirement goals.
If you would like a personalised review of your pensions and options under the post-LTA regime, you can contact Hoxton Wealth to discuss your situation and next steps.
FAQs
What happens if my pension exceeded the lifetime allowance under the old rules?
If your pensions were tested above the LTA before April 2024, any LTA charges that applied remain part of your history, and transitional rules now adjust your available lump sum allowance and lump sum and death benefit allowance. Scheme administrators and HMRC guidance can help confirm how much tax-free capacity remains.
Can I still make large contributions after the LTA was abolished?
Yes, you can generally keep contributing as long as you stay within the annual allowance and any tapering or money purchase annual allowance limits that apply. There is no longer a separate lifetime cap on total pension value, but lump sum allowances still limit tax-free cash.
What is the new limit for tax-free lump sums?
For most people, the standard lump sum allowance is £268,275, and the lump sum and death benefit allowance is £1,073,100, with higher limits for some protected individuals. Tax-free cash is still usually capped at 25% of the fund value, subject to these overall allowances.
How do I avoid exceeding pension limits under the new rules?
Monitor how much tax-free cash you have taken across all schemes and keep track of contributions against the annual allowance. Regular reviews with a planner can help you decide how and when to take lump sums and which pots to use for income.
Is the lifetime allowance charge still applicable after 2024?
No. The specific lifetime allowance charge has been removed, and the LTA itself has been abolished from 6 April 2024. Instead, excess lump sums above the new allowances are taxed at your marginal rate of income tax.
How do I optimise my pension savings under the new rules?
Use pensions for tax-efficient saving within the annual allowance, diversify investments, plan contributions across tax years, and design a withdrawal strategy that balances tax-free cash and taxable income. Working with a regulated adviser, particularly if you hold large or international pensions, can help tie these steps into a coherent retirement plan.
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