Changes to pensions tax allowances - 2024

There’s no limit on the amount of pension you are allowed to build up across all your pension schemes. However, there are some tax charges that might apply if your pension exceeds certain allowances.

Removal of the Lifetime Allowance

The Lifetime Allowance was the amount you could save across all pension schemes over a lifetime without needing to pay a tax charge. The tax charge for exceeding the Lifetime Allowance was removed from 6 April 2023, and the allowance itself was removed altogether from 6 April 2024.

Introduction of new allowances

In place of the Lifetime Allowance, the government introduced two new allowances:

• The Lump Sum Allowance: You are entitled to take 25% of your pension as a tax-free lump sum. The Lump Sum Allowance limits the total amount you can take as tax-free cash from all your pension schemes. It is £268,275 for the 2024/25 tax year.
• The Lump Sum and Death Benefit Allowance: This is the maximum amount your beneficiaries—who would receive your pension in the event of your death—can take from all your pension schemes as a tax-free cash lump sum. The allowance also applies to any lump sum you take from your pension in the event of serious ill health. It is £1,073,100 for the 2024/25 tax year, minus any tax-free cash lump sum you have already taken.

Any cash taken in excess of these allowances would be taxed at your marginal tax rate.

These allowances may be higher if you have Lifetime Allowance Protection. There are other cases where your pension withdrawal may not count towards these allowances or where the entire amount can be withdrawn tax-free. In addition, where you have taken some (but not all) retirement benefits before 6 April 2024, your lump sum allowances may be impacted. You can find more information at: https://www.gov.uk/guidance/find-out-the-rules-around-individual-lump-sum-allowances

Changes to the Annual Allowance (from April 2023)

The Annual Allowance also changed in April 2023 – a summary of the changes is given below:

Annual Allowance

• The Annual Allowance is now £60,000 a year (previously £40,000)
  This is the maximum amount by which your pension can increase in a tax year without being subject to tax. If the total value of all your pension benefits is likely to increase by more than £60,000 over the tax year (6 April to the following 5 April) then you may be subject to a tax charge. The total includes contributions to any other pension schemes you may have.
• The minimum Tapered Annual Allowance is now £10,000 a year (previously £4,000)
  This will impact you if you earn £200,000 or more in a year. The higher your earnings, the more your Annual Allowance will be lowered.
• The Money Purchase Annual Allowance is now £10,000 a year (previously £4,000)
  If you have already started taking money out of a Defined Contribution (DC) pension, your Annual Allowance for contributing to any DC scheme will be £10,000, and your Annual Allowance for any DB schemes would be reduced accordingly. For example, if you paid the maximum £10,000 into a DC scheme, then your Annual Allowance for DB schemes would reduce to £50,000.

You can find out more about the tax allowances for pensions on the MoneyHelper website:  www.moneyhelper.co.uk

Select ‘Pensions & retirement’ from the main menu at the top of the page, and then ‘Tax and pensions’. You can explore the different tax allowances from the ‘Articles’ section.

Date last updated: August 2024

The contents of this article reflect current legislation at the time of publication, however the position could change in future.