This is the most significant change to the UK pensions tax regime for nearly two decades.

What was the LTA?

The LTA was the maximum amount an individual could save into their pension during their lifetime. At the time of the change the LTA was £1,073,100 and the maximum Pension Commencement Lump Sum (PCLS), was normally capped at 25% of the available LTA. Any savings over the LTA incurred a charge. The charge was 55% if the excess was taken as a lump sum, and 25% when the excess was taken as pension.

At times the LTA was a higher amount and when it changed it was possible, in certain circumstances, to keep the higher amount by protecting it.

What is replacing the LTA?

From 6th April 2024, two new allowances were introduced:

• A new Lump Sum Allowance (LSA) of £268,275 (25% of the previous LTA limit) and,
• If a pension saver dies before the age of 75, a new Lump Sum Death Benefit Allowance (LSDBA) of £1,073,100 (the previous LTA amount).

Individuals will not pay tax where the non-taxable element of lump sums they receive does not take them above these levels. Where a lump sum exceeds these levels, the excess will be taxed at the recipient’s marginal rate (except where LTA protections apply).

Existing LTA protections will remain relevant and so the standard LSA and LSDBA will be increased for anyone with protection, for example if you have Fixed Protection 2014 your LTA will be £1.5 million, your LSA will be up to £375,000 (25% of £1.5 million) and LSDBA will be £1.5 million. With effect from 6th April 2023, individuals with Enhanced or Fixed protection will no longer lose that protection if they make further pension savings, provided they applied for the protection before 15th March 2023.

Where funds in pension schemes are used to provide a taxable income, such as from drawdown or an annuity, this element does not need to be tested against the new limits and is therefore uncapped.

If the pension saver reaches age 75, the new regime generally has either a neutral or a beneficial effect both during their lifetime and on death.

If you had taken pension benefits before 6th April 2024 a transitional calculation will apply to the new allowances to take this into account.

This is clearly a very complex area, and individual circumstances will vary considerably. For clarification on how the new regime may affect your own retirement plans and pension savings, or any other financial advice, please speak to your Wealth Planner.

Please note: This content is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may impact on the accuracy of the article.

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by interest rates at the time you take your benefits.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means-tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.

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