Has the pension Lifetime Allowance really been abolished?

Full answer

The Lifetime Allowance (LTA) was, until April 2023-2024, a cap on the total value of pension savings you could build up across your lifetime without triggering an additional tax charge -- it was effectively neutralised (charge reduced to 0%) from April 2023, and then fully abolished as a concept from 6 April 2024. **What abolition actually changed** Removing the LTA means there is no longer an overall cap on how large your total pension pot can grow without an extra LTA tax charge on the excess. This particularly benefits higher earners, NHS consultants, and others with large defined benefit pensions who previously faced LTA charges of up to 55% on amounts taken as a lump sum above the limit, or 25% (plus income tax) if taken as income. **But it is not unlimited -- two new allowances replaced it** Abolishing the LTA did not mean unlimited tax-free pension lump sums. Two new, separate allowances now apply: 1. **Lump Sum Allowance (LSA): £268,275** -- this caps the total TAX-FREE cash (pension commencement lump sum) you can take across all your pensions combined during your lifetime, broadly equivalent to 25% of the old £1,073,100 LTA. 2. **Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100** -- this caps the total tax-free lump sums you or your beneficiaries can receive, including tax-free cash taken during your lifetime PLUS tax-free lump sum death benefits paid out when you die. **Worked example** David has a combined pension pot worth £1.4 million at retirement. Under the old LTA rules, the excess above £1,073,100 (£326,900) would have triggered an LTA charge. Under the new rules, there is no overall cap on the £1.4 million pot itself, but David can still only take a maximum of £268,275 as tax-free cash (the LSA) -- any further lump sum withdrawals beyond that are taxed as income, and the remainder of the pot can be drawn down as taxable pension income without an LTA-style penalty charge. **Protections carried forward** Individuals who previously registered for Fixed Protection, Individual Protection, or similar LTA protections generally retain a higher personalised Lump Sum Allowance and Lump Sum and Death Benefit Allowance reflecting their protected LTA figure, rather than the standard £268,275/£1,073,100 figures. **Why this matters for planning** High earners no longer need to stop pension contributions purely to avoid an LTA charge, but the tax-free CASH available remains capped, so large pots increasingly mean a bigger proportion is drawn as taxable income rather than tax-free lump sum.

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