The lifetime allowance: what changed when it was abolished

For most of the last two decades, there was a ceiling on how much you could build up in pension savings without paying an extra tax charge. That ceiling, the lifetime allowance, was set at £1,073,100 in the tax years before abolition¹. From 6 April 2024 it was abolished altogether¹. The 55% and 25% charges that came with breaching it are gone³.

What replaced the lifetime allowance is not a single new cap on total pension savings but two smaller allowances that limit tax-free cash: the Lump Sum Allowance, £268,275 for most people⁴, and the Lump Sum and Death Benefit Allowance, £1,073,100⁵. There is no longer any limit on the total amount you can save, though tax relief on contributions is still capped each year by the annual allowance⁶.

If you built up pension savings before April 2024, or you hold one of the old protections such as fixed protection, the abolition changes what those are worth, and a document called a transitional tax-free amount certificate can, in some circumstances, increase the tax-free cash available to you.

What the lifetime allowance was: a £1,073,100 cap on tax-relieved pension savings

The lifetime allowance was the maximum total value of pension savings you could build up without paying extra tax⁶. It applied across all of your pensions combined, not to each scheme separately, and it covered both workplace pensions and personal pensions. In its final years, from 2021-22 onwards, the allowance was frozen at £1,073,100², and it stood at that figure in the 2022-23 tax year¹.

The allowance had not always been at that level. At its highest, in 2011-2012, it was worth £1.8m¹. It was then reduced in stages over the following years before being frozen and eventually scrapped. The freeze at £1,073,100 was set in legislation covering the tax years 2021-22 to 2025-26, which kept the allowance at its 2020-21 level², although in the event the allowance was abolished before most of that period ran its course.

Every time you took money out of a pension, or reached age 75, part of your savings was "crystallised" and measured against the allowance. Once the total across all your pensions passed £1,073,100, the excess faced the lifetime allowance charge. For someone with a large defined benefit pension, the allowance could bite well before retirement: one parliamentary submission noted that members of a defined benefit arrangement could accrue a pension of £50,000 a year before reaching a £1m lifetime allowance⁸.

The allowance was the reason the various "protections" existed. People whose savings had already grown large, or who were close to a previous lower limit, could apply to protect a higher allowance, and those protections still have consequences today, as covered later on this page.

The 55% charge is gone: what abolition removed

The lifetime allowance charge was the penalty for going over the cap, and it was severe. A lifetime allowance excess lump sum, money taken as a single payment above the allowance, was subject to a charge of 55%⁹. Where the excess was used to provide income instead, the remaining 75% was subject to the charge at a special rate of 40%⁹.

The charge was removed in two stages. From 6 April 2023, the government removed the lifetime allowance charge for all members of registered pension schemes³. The measure was designed so that no one would face a lifetime allowance charge from April 2023³. Then, from 6 April 2024, the lifetime allowance itself was abolished from the pensions tax rules¹.

What this means in practice is that there is no longer a tax charge triggered simply by the size of your pension pot. You can build up as much as you want, and taking money out no longer creates a 55% or 40% charge on the excess over £1,073,100. The Lifetime Allowance has been scrapped⁴.

What abolition did not do is remove all limits on tax-free cash. The government replaced the allowance with two new allowances that cap how much of your pension you can take tax-free, and those are the figures that now matter to most people with substantial savings.

Saving is uncapped, but tax relief still has yearly limits

With the lifetime allowance gone, there is no upper limit on the total amount of pension saving you can build up⁶. You can contribute as much as you like into any number of pension schemes, personal or workplace or both, each year⁶. You can save as much as you want in a personal pension, with tax relief on the amount you put in up to the annual allowance⁶.

The annual allowance is the limit that still bites on the way in. The maximum you will receive tax relief on is £60,000 or 100% of your salary per year, whichever is lower⁷. Contributions above the annual allowance can face an annual allowance charge, and high earners may be subject to a tapered that reduces their allowance further. Unused allowance from earlier years can sometimes be carried forward, which is covered on the carry forward page.

For most people, the abolition of the lifetime allowance removed the main reason to monitor the total size of their pension savings. But two groups still need to keep an eye on the numbers: those approaching the tax-free cash limits described in the next section, and those with large defined benefit pensions who may face the annual allowance charge each year as their pension grows.

The new limits that replaced it: two lump sum allowances

The lifetime allowance was replaced by two allowances that limit tax-free cash rather than total savings. The first is the Lump Sum Allowance. This caps the total tax-free lump sums you can take from your pensions during your lifetime at £268,275 for most people⁴. The second is the Lump Sum and Death Benefit Allowance, set at £1,073,100⁵, which covers tax-free lump sums taken in life plus certain lump sums paid on death.

The Lump Sum Allowance is the figure most people will come across, because it applies when you take your tax-free lump sum. The Lump Sum and Death Benefit Allowance is the wider of the two, and it also matters to anyone dealing with a pension after someone dies, since certain death benefits count against it. The rules on what happens to your pension when you die are covered on the death benefits page.

Both allowances are reduced by any tax-free cash you took before 6 April 2024, carried forward under the old system. The legislation defines this carried-forward figure by reference to what would have been the "previously used amount" under the old rules immediately before 6 April 2024¹⁴. In other words, your history under the lifetime allowance still follows you into the new system.

Tax-free cash is still capped

The most practical consequence of the new system is that tax-free cash remains capped, even though total savings are not. When you take a lump sum from your pension, 25% is usually paid tax-free, as long as the total amount of tax-free cash taken stays within your available allowances¹⁵. The other 75% counts as earnings for Income Tax¹⁵.

For most people the cap works out at £268,275, because the Lump Sum Allowance is set at 25% of the old lifetime allowance figure⁴. The allowance is set at 25% of your pot, up to a lifetime cap of £268,275¹⁶. If your pension savings are large, you can still take 25% of the pot, but only up to that ceiling; anything above it is taxed as income.

People with a protected lifetime allowance can have a higher cap. For them, tax-free cash is capped at 25% of the protected lifetime allowance, rather than at the standard figure¹⁷. The protected amounts are set out in legislation and vary by protection type, as the table in the protections section below shows.

It is worth being clear about what the cap does not do. It does not limit how much pension income you can receive, and it does not create a charge on the rest of your savings in the way the old 55% charge did. Money above the tax-free cash cap is simply taxed as income when you take it, under the normal rules covered on the tax on pension income page.

If you took pension benefits before the abolition

If you took pension benefits before 6 April 2024, those events still count. Each time you took benefits or reached age 75 under the old system, a "benefit crystallisation event" used up part of your lifetime allowance. The legislation carries that history forward: your lifetime allowance previously-used amount is defined as the amount that would have been the previously used amount under the old rules immediately before 6 April 2024¹⁴.

This carried-forward figure matters in several ways. It reduces the lump sum allowances available to you now, because tax-free cash taken before abolition counts against the new caps. It also affects overseas transfers: where the previously-used amount is equal to or greater than the lifetime allowance, none of the individual's overseas transfer allowance is available on making the transfer¹⁸. If you are considering moving a pension abroad, your past use of the lifetime allowance is therefore directly relevant.

There are some technical adjustments. For individuals who reached age 75 before 6 April 2024, the previously-used amount is reduced by amounts crystallised by certain age-75 events where no lump sum entitlement arose¹⁴.

A separate group affected is those caught by the public service pensions remedy, sometimes called the McCloud remedy. If you had a benefit crystallisation event during the remedy period, your lifetime allowance tax position may have changed: a previous lifetime allowance charge can be reduced, or a new or increased charge may be due¹⁹. Before 6 April 2023, if you exceeded your lifetime allowance and had a charge, you and the scheme administrator were both liable to pay it²⁰. If your lifetime allowance charge decreased and the benefit crystallisation event occurred between 6 April 2015 and 5 April 2019, you can claim compensation for the difference¹¹. The McCloud remedy page covers this in full.

Transitional tax-free amount certificates: who might gain from one

Because the new allowances are reduced by tax-free cash taken under the old system, some people could find their Lump Sum Allowance almost entirely used up by past events, even though the actual tax-free cash they received was small. The transitional tax-free amount certificate exists to deal with this. It is a document that, once issued, sets out the amount of tax-free cash you are treated as having used, and in some circumstances that figure is lower than the default calculation, leaving more allowance available.

The certificates are technical, and whether one helps depends on the pattern of benefits you took before April 2024. The dedicated page on transitional tax-free amount certificates explains the mechanics in detail. The deadlines are set in legislation: an application may not be made after the 31 October next following the end of the tax year in which a relevant lump sum death benefit is paid in respect of the individual¹⁴.

There are also rules about telling your other pension schemes once a certificate has been issued, because the certificate changes the amount of allowance each scheme can pay tax-free. Separately, the legislation requires a scheme administrator to provide information to a member's personal representatives no later than the last day of a period of two months beginning with the day a request for it is received¹⁸. HMRC's pension schemes newsletters have covered the reporting requirements, lump sums and lump sum death benefits, the overseas transfer allowance, and the transitional arrangements in detail²¹.

Fixed protection and other old protections: what they are worth now

Protections were introduced from 6 April 2006 onwards¹¹, and each one preserved either a higher lifetime allowance or the right to tax-free cash above the standard amount. With the lifetime allowance abolished, the value of these protections has shifted: what most of them now protect is a higher lump sum allowance, that is, a higher cap on tax-free cash.

The legislation sets out the protected amounts for each type of protection¹⁴:

For individuals with fixed protection under the 2011 rules, the amount specified as the individual's lump sum allowance is £450,000¹⁴. The protected lump sum and death benefit allowances shown above are the wider caps that apply to those individuals for tax-free cash in life plus certain death lump sums.

Two things are worth knowing about protections now. First, if you lost a protection, for example because you joined a new pension scheme, you can ask for it to be reinstated if the reason you lost it no longer applies. This covers enhanced protection, fixed protection, fixed protection 2014 and fixed protection 2016¹¹. Second, you can check or amend your pension lifetime allowance protection through the government's website¹, so the details of what you hold and what it is now worth can be confirmed before benefits are taken.

Where to check your figures and get help

The starting point for checking your own position is your pension providers. Each scheme should be able to tell you what benefits you have taken and when, which determines your previously-used amount and therefore how much of your new allowances remain. The government's guidance on protecting your lifetime allowance explains the protections and how to check them¹, and HMRC's lifetime allowance newsletters answer frequently asked questions on lump sums, reporting requirements, the overseas transfer allowance and the transitional arrangements²¹.

For free guidance on your options, Pension Wise offers appointments to people aged 50 and over. For public sector pension issues connected to the McCloud remedy, the government's collection of guidance explains how the remedy affects your pension¹⁹, and there is separate guidance on checking how your lifetime allowance was affected¹¹ and on private sector schemes affected by the remedy⁹.

For complex cases, particularly where large sums, protections or transitional certificates are involved, paid-for financial advice is one option people use. The rules in this area are set by legislation and HMRC guidance rather than by providers, so the figures a firm quotes can be checked against the official sources above.