Pension lifetime allowance


This briefing sets out how the lifetime allowance (LTA) worked between April 2006 and 6 April 2024, including when checks needed to happen, how benefits were valued and when a higher level of benefits might be permitted.

From 6 April 2024 the lifetime allowance is removed and replaced with the lump sum allowance and lump sum and death benefit allowance. See our Lump Sum Allowance and Lump Sum and Death Benefit Allowance article for more information on these allowances.

Core considerations 

  • The lifetime allowance was the overall limit on total pension savings an individual can accumulate and was abolished from 6 April 2024.
  • The standard lifetime allowance was last set at £1.0731 million.
  • From the tax year 2023/24 the lifetime allowance charge was removed although there was still a check against the lifetime allowance when benefits were drawn in that tax year.   
  • During 2023/24 if an individual’s benefits exceed the lifetime allowance and are paid as a lump sum, the excess will be treated as income and subject to income tax in the hands of the recipient.   
  • There are several transitional protections which may provide a lifetime allowance greater than the standard lifetime allowance. These were put in place when the lifetime allowance was first introduced and on each successive reduction in the standard lifetime allowance. These are still relevant to protect higher value pension commencement lump sums and large lump sum death benefits prior to age 75.
  • Prior to 6 April 2024 all benefits had to be valued when there is a benefit crystallisation event – defined benefits/scheme pensions, and pre 6 April 2006 benefits, are valued using a factor of 20:1 or 25:1 respectively. 
  • At each benefit crystallisation event, the scheme administrator confirmed the percentage of the individual’s lifetime allowance used up so that it can be considered at the next benefit crystallisation event. 
  • A cap on the maximum pension commencement lump sum (PCLS) equal to 25% of the lifetime allowance (£268,275) has been put in place from 6 April 2023. If valid protection is in place, it is possible that a higher PCLS than the cap may be paid. 



The Lifetime Allowance (LTA)

The LTA was a limit on total pension savings an individual could accumulate without incurring an additional tax charge.

The standard LTA applied since 6 April 2006 when it was originally set at £1.5m. It was increased and then capped at £1.8m in 2010/11. It was subsequently reduced three times and is now set at a level of £1.0731 million. The amount of the standard LTA over time is listed in HMRC’s Pensions Tax Manual PTM081000.    

The LTA was abolished from 6 April 2024 but was still in legislation in tax year 2023/24 despite the lifetime allowance tax charge being removed.

Benefit crystallisation events

The value of an individual’s pension savings were assessed when retirement benefits are taken (crystallised) and when most death benefits were paid. An event that triggered a test against the lifetime allowance is called a benefit crystallisation event (BCE). This includes taking pension benefits (including flexi-access drawdown or a pension commencement lump sum), reaching age 75, death, or transferring to a qualifying recognised overseas pension scheme. A list of the benefit crystallisation events can be found in HMRC’s Pensions Tax Manual PTM088100

When a BCE happens, there was a test against the LTA (if a member has a valid protected LTA the test will be against the higher limit) and if the LTA is exceeded, the excess is subject to tax. During 2023/24 the tax applied was income tax. Prior to that date the tax applied was the lifetime allowance tax charge. Members must have provided confirmation to a scheme administrator of their remaining LTA so the scheme can provide the appropriate tax-free cash.    

For a deceased member, the personal representatives were responsible for establishing if the member had sufficient LTA to cover any pension death benefits. They needed to account for any member records of LTA used during the members lifetime.

The personal representatives are responsible for informing HMRC if any benefits exceeded the deceased’s LTA and who received those death benefits.  

Where pension death benefits exceed the member’s LTA during 2023/24 the recipient was liable to income tax at their marginal rate on their portion of the benefit in excess of the LTA.

The lifetime allowance check – valuing benefits

To perform a LTA check, the individual’s pension benefits must have been valued as follows: 

  • For benefits paid after 5 April 2006:
    • the value of any tax-free cash (from whatever type of scheme),
    • The amount of fund used to purchase an annuity.
    • The amount of fund designated to drawdown.
    • Where a scheme pension is put into payment from either a defined benefit scheme or from a money purchase scheme, the value of the pension is converted into a capital value by using a factor of 20:1. So, a scheme pension of £15,000 per annum would be valued at £300,000. Sometimes HMRC can agree a higher valuation factor with a scheme administrator in certain circumstances.   
  • Pensions in payment prior to 6 April 2006: 

Any pension benefits in payment prior to 6 April 2006 were tested against the LTA at the first BCE event post 6 April 2006. A factor of 25:1 is used to convert each £1 of an individual’s pension in payment at the date of the first crystallisation event. There is no separate accounting for any tax-free cash lump sum taken as this has been allowed for in the factor used.   

If the individual is in receipt of drawdown the value is broadly, 25 x the maximum annual amount that could have been paid as a capped drawdown. In a number of scenarios only 80% of the maximum drawdown income is considered. Full details including a worked example can be found in HMRC’s Pensions Tax Manual PTM088300.

If a member has no other pensions, then all pensions already in payment will never be tested for LTA purposes.  

Each time there was a BCE the scheme administrator must have confirmed the percentage of the individual’s LTA used up so that it can be taken into account at the next BCE. The percentage remains constant even when the amount of the LTA changed over time. 

Age 75

For the 2023/24 tax year and earlier, uncrystallised pensions were tested against the LTA when a member reached age 75.

Funds designated to drawdown after 5 April 2006 had a second check against the LTA to check if the drawdown fund has increased in value since the original designation to drawdown. Any increase was counted towards the LTA.

These BCE tests still happened during 2023/24 even though the LTA charge was removed from 6 April 2023. There were no immediate tax implications if any pension benefits exceed the LTA at age 75 for the 2023/24 tax year. Once the benefits were put into payment or lump sums taken then the member became liable to income tax on any excess above the LTA.

Low Pension ages

Some pensions have retained a right for members to access their pension benefits before the normal minimum pension age (NMPA), currently 55. Those with a protected retirement age between age 50 and 55 were treated the same as any other benefits for LTA purposes.

When a member with a protected retirement age below age 50 crystallises their benefits before NMPA, they would have their LTA (or protected LTA) reduced by 2.5% for each complete year before the NMPA. 

A reduced LTA would restrict the amount of tax-free cash available.  

Benefits taken at a low pension age are revalued when considering the remaining LTA when other benefits are taken after the NMPA. 

Transitional Protections

Some people may have an individual/protected LTA. For details about how these protections work read our briefing

Example of the lifetime allowance

Maria was age 66 on 6 April 2015. Her money purchase pension benefits were valued at £750,000. She had taken a defined benefit pension 10 years before when taking early retirement – taking a tax-free cash lump sum and a pension - she is currently receiving a pension in payment of £10,000 per annum.

Her current pension in payment is valued at £250,000 (25 x £10,000) as it was put into payment prior to 6 April 2006. There is no requirement to separately add in the tax-free cash lump sum as it has been considered by using the factor of 25.

This means her total pension benefits were valued at £1m when the lifetime allowance was £1.25m. By taking her pension benefits of £750,000 (as a pension commencement lump sum of £187,500 and £562,500 to purchase an annuity) she had used 80% of her lifetime allowance and there was no lifetime allowance tax charge.

Maria has her 75th birthday in July 2023 and she decides to draw on her remaining pension – a Self Invested Personal Pension (SIPP) which is worth £250,000. Maria’s remaining lifetime allowance is 20% of £1.0731m = £214,620 which is less than the value of her SIPP (£250,000). If the excess (£250,000 - £214,620 = £35,380) is paid as a lump sum Maria will pay income tax on the excess.

If the excess is paid as income (for example into a flexi-access drawdown plan) there will be no additional charge to pay over and above the income tax on any income that is drawn down. This means the excess over the LTA will not be subject to a specific tax charge and so will be treated in the same way when it is paid out, irrespective of whether it is paid out as a lump sum or as income.