Scrapped Lifetime Allowance: What it Means for Your Pension Savings

The government's decision to abolish the Lifetime Allowance (LTA) on April 6th, 2024, is a significant change for pension savers. Here at Ifamax Wealth Management, we want to help you understand what this means for your retirement planning.

What was the Lifetime Allowance?

Previously, the LTA capped the amount you could accumulate in your pension pots before facing tax charges on withdrawals. If your pension exceeded the limit (set at £1,073,100 in 2023/24), any amount above suffered a penalty charge when withdrawn.

The LTA is Gone, But Allowances Remain

While the LTA is scrapped, it's replaced with three new allowances:

  • Lump Sum Allowance (LSA): You can take 25% of your pension as a tax-free lump sum (Pension Commencement Lump Sum) upon reaching 55 (rising to 57 from 2028). This allowance is capped at £268,275 per person, across all your pension pots.

  • Lump Sum and Death Benefit Allowance (LSDBA): This combined allowance totals £1,073,100 and covers both tax-free lump sums taken while alive and those paid out on death (if before age 75). Any death benefits exceeding this limit are taxed at the beneficiary's marginal income tax rate.

  • Overseas Transfer Allowance (OTA): Set at £1,073,100, this allowance applies to transfers made to qualifying overseas pension schemes (QROPS).

Lifetime Allowance Protection

Some individuals may have "lifetime allowance protection," safeguarding their pension savings from past LTA reductions. This could mean a higher LSA or LSDBA if you had a significant pension pot at certain dates, and registered for protection with HMRC.

Increased Contribution Limits

Alongside the LTA abolition, the government raised the annual tax-free pension allowance to £60,000 or 100% of your salary (whichever is lower). The money purchase annual allowance (MPAA) for those already retired also increased to £10,000. These changes aim to encourage continued pension contributions.

Looking Ahead

With a UK general election now decided, there is always the chance our new government might reintroduce the LTA. Therefore, it might be wise to review your pension and pension planning sooner rather than later.

 

Speak to a Financial Advisor

The changes can seem complex. Ifamax Wealth Management is here to help. Our team of financial advisors can provide personalised guidance on navigating these changes and maximising your retirement savings. If you require wealth management services in Bristol, please contact our team of financial advisors.

Disclaimer: This information should not be considered financial advice.

Financial PlanningAshton Chritchlow