Your Pension - Your Future 

The Lifetime Allowance (LTA) will end in April 2024 and will be replaced by new allowances. Although not everyone is affected by the change, this article explains the developments and what they may mean for you. 

The LTA was the maximum amount you could build up in all of your pension savings before you paid additional tax.

But from 6 April 2024, the government is replacing it with 3 new allowances.

What are the new allowances?

There are 3 new allowances and they limit the total amount of tax-free lump sums people can get from pension savings. They're called:

• the Lump Sum Allowance (LSA)
• the Lump Sum and Death Benefits Allowance (LSDBA), and;
• Overseas Transfers Allowance (OTA)

The Lump Sum Allowance (LSA)

The LSA is a cap on the amount of tax-free lump sum you can receive from all your pension arrangements. Lump sums paid under this allowance are called Pension Commencement Lump Sums (PCLS).

The most you can take as a tax-free lump sum from all your pension arrangements is £268,275, unless you hold a valid LTA protection, in which case it will be 25% of the value of the protected amount.

The Lump Sum and Death Benefits Allowance (LSDBA)

This is the cap on the tax-free lump sum that can be paid to, or in respect of, a member of a pension scheme. If the value of lump sum death benefits means that the LSDBA will be exceeded, the excess will be taxed at the marginal rate of income tax of the person receiving it.

The standard LSDBA is £1,073,100. But if you hold a valid LTA protection, it will be the value of the protected amount.

Overseas Transfer Allowance (OTA)

This only applies to transfers out to a Qualifying Recognised Overseas Transfer Scheme. The OTA limit will be £1,073,100, unless you hold a valid LTA. If the transfer value exceeds the OTA, there will be an overseas transfer charge (OTC) of 25%.

How this may affect you

Not everyone will be affected by this change. If you retired, or took benefits from another pension arrangement, before 6 April 2024 the LTA still applies for those benefits. There may be delays to some queries as Railpen makes these new changes. 

What you need to do

If you are retiring, Railpen will send you more information with your retirement options. It's important that you read this carefully and complete all forms that have been sent to you.

If you are requesting pension benefits after 5 April 2024 and have already taken pension benefits, you may want to consider applying for a transitional tax-free amount certificate. This could be used to prove that you did not take the maximum amount of tax-free lump sum when you took your benefits before 6 April 2024. You may want this if you are close to the LSA and have previously taken a lump sum of less than 25% of the LTA.

You would need to apply and receive the certificate before you take your first lump sum amount on or after 6 April 2024.

This certificate must then be either issued or refused by the pension provider within 3 months of the application date.