2024-05-22
Your private pension contributions are tax-free and have further tax reliefs at the time benefits are taken, up to certain limits. The Annual Allowance (AA) is the maximum tax-free pension contributions you can make each year and the LTA is the total amount of tax-advantaged pension savings you can accumulate over your lifetime. The LTA was removed on 6 April 2024. This does not mean there are no limits on the amount of tax-advantaged pension savings you can take; the AA remains in place and the LTA has been replaced by new allowances.
It is worth noting that the Labour party was not in favour of abolishing the LTA. Therefore, there is a possibility that, if elected, a Labour government might reinstate the LTA (or a similar regime).
The LTA was replaced with three different allowances:
Where one or other of these new allowances has been used up, lump sum payments that would otherwise be tax-free, will be subject to income tax at the recipient’s marginal rate.
There is also:
Tax charges will apply if pension funds are transferred overseas in excess of this allowance.
* The new allowances may be higher for individuals who have registered for LTA protection, and may be lower if you have already taken any pension benefits.
There are now no restrictions on the level of pension a member can take and pensions in payment continue to be taxed via PAYE.
For most members the lump sums they can take will remain within these new allowances. Members whose total benefits across all schemes are close to or exceed the current LTA are more likely to be affected by these changes.
A member’s available LSA and LSDBA are reduced when they take either a Pension Commencement Lump Sum (PCLS) or an Uncrystallised Funds Pension Lump Sum (UFPLS).
The available OTA is reduced by any Qualifying Recognised Overseas Pension Scheme (QROPS) transfers.
are tax-free at the point of payment and are measured against the member’s remaining LSDBA.
