HM Revenue and Customs (HMRC) previously limited the total amount of pension savings you could have in all pension schemes. This was known as the lifetime allowance.
The Government has announced that no-one will pay a lifetime allowance tax charge from 6 April 2023. If a tax charge arose before this date it is still payable. The lifetime allowance was abolished completely from 6 April 2024.
Although the lifetime allowance limit is now abolished, the following limits apply from 6 April 2024:
A lump sum allowance limit of £268,275: This is the total tax-free lump sum you can receive from all your pensions, including your LGPS pension, unless you have a valid protection certificate that entitles you to a higher tax-free amount. Any lump sum in excess of this limit will be taxed at your marginal rate. The figure of £268,275 is known as the Lump Sum Allowance (LSA) and there is no provision within the legislation for the LSA to increase.
A lump sum death benefit allowance (LSDBA) of £1,073,100: This is the total tax-free lump sum amount that can be paid from pensions to beneficiaries if someone dies before age 75. Any lump sum in excess of this limit is taxed at the beneficiary’s marginal rate.
An overseas transfer allowance of £1,073,100: This is the total value of pensions you can transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS). Any amount in excess of this limit will be subject to a 25% tax charge.
When you are paid either a LSA or LSDBA, we will check it fits within the available limit.
Before 6 April 2023, if the value of your pension benefits when you took them was more than the lifetime allowance, or more than any protections you held, you had to pay tax on the excess benefits. This did not include any state pension, state pension credit or any partner’s or dependant’s pension you are entitled to.
The lifetime allowance covered any pension benefits you had in all tax-registered pension arrangement- not just the Local Government Pension Scheme (LGPS).
Further information can be found on the LGPS Member website and also on HMRC’s website.