15 Feb 2024

Abolition of the Lifetime Allowance post-April 2023

The lifetime allowance, or ‘LTA’, can be described as the maximum amount that an individual can build up in all their pension savings without incurring a tax charge. With effect from 6 April 2024 the LTA will be abolished and instead new allowances will be introduced. Previously, where benefits were built up in excess of the LTA, these would have been subject to an additional tax charge. The government’s announcement in March 2023 meant that with effect from 6 April 2023 this charge would be removed and that any amount of pension accumulated in excess of the LTA would instead be taxed at the marginal rate for each individual. There also remains a limit on the tax-free lump sum that you can take from the scheme.

Whilst the LTA is being abolished from 6 April 2024, it may still be relevant to your pension savings, for example for the purposes of revisiting pension calculations following a change in personal circumstances or the tax protections you have in place. We would encourage any members looking to access their pension to consider these changes before making any decisions for retirement.

The law that will bring about the 2024 changes is still in draft and there is the potential for further change in the run up to 6 April 2024.    Whatever the final form of the new regime, you should be aware that the changes may affect plans you may have already made for drawing pension benefits or other financial decisions.  In addition, there can be no guarantee that the form of benefits that tax legislation will permit pension schemes to provide, nor the rate of taxation applicable to those forms of benefit, will be the same before and after 6 April 2024.

This means that if you are considering taking benefits – particularly in the period that spans 6 April 2024 – it is strongly recommended that you take advice from an authorised independent financial adviser to make sure that any decision is the right one for you, taking account of the developments described above.

For further information on the new allowances, please contact Capita, the scheme administrator, using the contact details HERE.