Pension taxation is changing. Here's what you need to know.
Since 2006, pension savings have been subject to a Lifetime Allowance, or LTA. It used to be the case that if the total value of all your pension benefits was more than the LTA, you’d have to pay additional tax when taking them. Most people weren’t affected by the LTA, but if you were, it could mean a hefty bill at retirement.
From the 6th of April 2024, the LTA is being removed. That might mean you can think about saving more, or working for longer to build up more pension.
Did you know you can take a quarter of your pension savings as a tax-free lump sum? That’ll still be the case in the new system – but there will be an upper limit on the lump sum’s value. The new Lump Sum Allowance, or LSA, has been set at a quarter of the old LTA’s value. Any lump sums greater than that will be taxed.
There will also be a new Lump Sum and Death Benefit Allowance, set at just over £1 million. This limits the tax-free payments that can be made when someone dies. It also applies if someone’s entire pension is converted to a single lump sum due to ill health, and it can be reduced if some tax-free cash sums have already been taken.
If you think these new measures might affect you, we recommend that you take independent financial advice. MoneyHelper can help you to find an Independent Financial Adviser in your area.
We hope that’s made things a little clearer - and a bit less taxing!
