The Lifetime Allowance (LTA) ended in April 2024 and was replaced by new allowances.

Although not everyone is affected by the change, it may be helpful to explain what the developments could 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 replaced the LTA with 3 new allowances.

What are the new allowances?

There are 3 new allowances that have replaced the LTA 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
• the Overseas Transfer 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 LTA protection, in which case it will be 25% of the value of the protected amount. If the only pension arrangement you're a member of is the Eon UK Group of the ESPS, you only need to consider whether the total tax-free lump sum you want to take from all of your scheme pension benefits is more than the limit.

Any lump sum that is paid in excess of the available LSA is liable for tax at your marginal rate of income tax. This excess amount is called a Pension Commencement Excess Lump Sum (PCELS). Alternatively, the excess can be converted to additional annual pension.

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. 

The 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 protection. If the transfer value exceeds the OTA, there will be an overseas transfer charge (OTC) of 25%.

How this could 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.

If you request 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 provide 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're 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.

If you have any queries about your pension, please email enquiries@railpen.com or call 0247 6472 541.