Life after the Lifetime Allowance: the new lump sum allowances

For years, pension savers had to keep an eye on the Lifetime Allowance - a cap on the total pension wealth you could build up before extra tax charges applied. That allowance was abolished in April 2024, and a new set of rules took its place. If you have not looked at your pensions since, here is what changed and why it still matters.

The Lifetime Allowance charge is gone. In its place, the tax-free elements of your pension are now governed by two new allowances that focus specifically on lump sums:

• The Lump Sum Allowance (LSA): broadly £268,275. This is the total tax-free cash you can normally take across all your pensions in your lifetime - a quarter of the old Lifetime Allowance figure.
• The Lump Sum and Death Benefit Allowance (LSDBA): broadly £1,073,100. This covers tax-free lump sums paid both in life and on death, including certain benefits paid to your beneficiaries.

For most people, the important headline is simple: you can still usually take up to 25% of your pension as a tax-free lump sum, but there is now an overall cash cap of around £268,275 unless you hold a protection.

Under the old system, people with larger pensions could apply for various forms of 'protection' that locked in a higher allowance. Many of those protections carried over and can now entitle you to more tax-free cash than the standard figure. If you ever applied for protection - or think you might have been entitled to it - it is worth checking, because it can be valuable and is easy to overlook.

While the lump sum rules grabbed the headlines, the bigger long-term shift for many families is what happens on death. Separately from these allowances, most unused pension funds will come into the scope of Inheritance Tax from April 2027. So the modern picture is that pensions remain excellent for building and drawing retirement income, but their role as a vehicle for passing on wealth tax-free is being scaled back. That is a meaningful change in how pensions fit into an overall plan.

If you have a substantial pension, the abolition of the Lifetime Allowance may mean you can now save more without the old penalty - but the interaction with the lump sum allowances, any protections you hold, and the coming Inheritance Tax changes is genuinely intricate. This is an area where getting the sequence and timing right can make a large difference, and where general rules of thumb are least reliable.

We check your allowances and protections, and help you plan tax-free cash and withdrawals in the right order for your situation.