Important information: Pension and tax rules can change and any benefits will depend on your circumstances. This isn't personal advice. If you’re unsure about what’s right for your situation, please ask for financial advice. For complex taxation needs please consult an accountant. The information on this page is correct as at 6 April 2023.
What is the pensions lifetime allowance?
The lifetime allowance is the limit on the total value of pension benefits you can build up throughout your lifetime (this includes employer pension schemes) and generally receive up to 25% of tax free. Unless you have protection, the standard lifetime allowance is currently £1,073,100.
What changes have been made this tax year?
Under the old rules, if the value of your pensions exceeded the lifetime allowance it would normally trigger a tax charge. But since 6 April 2023, the lifetime allowance charge has been removed. And from April 2024, the lifetime allowance is set to be completely abolished.
How is tax-free cash affected?
Despite plans to abolish the lifetime allowance, your pensions will still be measured against it. This is because it still provides an upper limit to the tax-free amount that can be typically accessed from pensions.
The upper limit to the tax-free amount most people can receive is £268,275 (25% of the standard lifetime allowance of £1,073,100). If you hold protection, you could be entitled to a higher tax-free amount. To find out how much more tax-free cash you could get, download our essential guide.
Should you apply for lifetime allowance protection?
Even though the lifetime allowance charge no longer applies, you might consider applying for protection if you’re nearing the lifetime allowance (currently £1,073,100). By applying for protection, you could be entitled to a higher tax-free amount.
There are two types of lifetime allowance protection available - and you can apply for both online via HMRC’s website:
If you haven’t made any contributions to any of your pensions since 5 April 2016 you could apply for Fixed Protection 2016. This includes both personal and employer contributions, and any benefit accrual in a defined benefit (e.g. final salary) scheme.
This will mean your lifetime allowance is fixed at £1.25m, and you could be entitled to a higher tax-free amount of up to £312,500.
If you apply for fixed protection after 14 March 2023, you’ll be unable to accrue further benefits (e.g. make further contributions), join new pension arrangements and make certain types of transfer without losing the protection.
If your pensions were worth more than £1m on 5 April 2016, then you might consider applying for Individual Protection 2016.
This will mean your lifetime allowance will match whatever the value of your pensions was on that date (or the standard lifetime allowance, if higher), up to a maximum of £1.25m. So if your protected lifetime allowance was £1.2m, the amount you could take tax free may be as much as £300,000.
Your lifetime allowance guide
The lifetime allowance is a complex rule. You can learn more about it, including the calculations you'll need to work out if you could be affected, in our lifetime allowance guide.
Financial Advice from HL
Get a deeper understanding of how the changes to the lifetime allowance and pension protection apply to you.
A financial adviser can help you review your pensions and give you the confidence that you’re making informed decisions. Find out:
- Whether you could or should start making pension contributions
- How to plan withdrawals tax efficiently
- More on the effect on any pension protections you may have taken out
- How you could save tax in other ways
Help and guidance
Guidance from Money Helper
If you want to make your money and pension choices clearer, get free government-backed, impartial guidance from Money Helper.
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