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Pension Allowances

As at 6 April 2024

We have put together a simple guide to help you understand what allowances and limits might apply to you and your pension savings.

Page contents:

Basic Amount

The maximum amount of pension contribution you are allowed to receive tax relief on, if you don’t have any Relevant UK Earnings. This is currently £3,600 gross (£2,880 net). This figure may be amended in future by Treasury Order.

Annual Allowance

This is the maximum amount that can be contributed in total to all your 'registered pension schemes’ in a tax year, without you being subject to a tax charge.

Increases in benefits under final salary pension schemes are also taken into account in the calculation – you should speak to your financial adviser if you think this may affect you.

Information
Current annual allowance
The current annual allowance is £60,000 *

Money Purchase Annual Allowance (MPAA)

For those who have previously accessed benefits flexibly, this is the maximum amount that can be contributed to all your ‘money purchase’ arrangements in a tax year, without you being subject to a tax charge.

This was introduced from 6 April 2015 and is a reduced limit on the total contributions that can be made to your pension if you have previously accessed benefits flexibly.

It applies when:

  • income is taken from ‘flexi-access drawdown’, or
  • an ‘uncrystallised funds pension lump sum’ (UFPLS) is received.

It does not apply where only a ‘pension commencement lump sum’ (PCLS) is taken from ‘flexi-access drawdown’.

If you are subject to the MPAA, you may not use ‘carry forward’ to increase what you can pay into your pension.

Information
Current MPAA
The current MPAA is £10,000 *

Tapered Annual Allowance

This reduces the annual allowance, on a sliding scale, for those with ‘threshold income’ over £200,000 and with ‘adjusted income’ of more than £260,000. Currently, for every £2 of ‘adjusted income’ over £260,000, the annual allowance will be reduced by £1 down to a minimum level of £10,000. The maximum reduction in the annual allowance is currently £50,000, therefore anyone with an income of £360,000 or more will have an annual allowance of £10,000.

Carry Forward

This allows you to increase your pension contributions above the current annual allowance by utilising any unused annual allowance from the previous three tax years. You can only carry forward unused annual allowance from a tax year in which you were a member of a ‘registered pension scheme’ and provided that applicable legal and HMRC requirements are met. The allowance you can carry forward can be impacted where the ‘tapered annual allowance’ applies. The use of any carry forward allowance requires sufficient pensionable earnings to justify the full contribution being made in the current tax year.

Lifetime Allowance (LTA)

This was the limit imposed by legislation on the total value of an individual’s Registered Pension Schemes between 6 April 2006 and 5 April 2024. Exceeding this limit used to result in tax charges.

The LTA was abolished from 6 April 2024. In its place, two new limits have been introduced relating to payment of lump sums. These are the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA).

Lump Sum Allowance (LSA)

This is the limit imposed by legislation on and from 6 April 2024 on the total value of Pension Commencement Lump Sums or the tax-free element of an UFPLS. Exceeding this limit will normally result in tax charges.

The standard level of the LSA is £268,275, but you may have a higher LSA if you previously held any form of protection against the LTA, please see protections below.

Information
Current LSA
The current LSA is £268,275

Lump Sum and Death Benefit Allowance (LSDBA)

This is the limit imposed by legislation on the total value of lump sums paid from an Individual’s Registered Pension Schemes on and from 6 April 2024. Exceeding this limit will normally result in tax charges.

The standard level of the LSDBA is £1,073,100, but you may have a higher LSDBA if you previously held any form of protection against the LTA, please see protections below.

Information
Current LSDBA
The current LSDBA is £1,073,100

Enhanced Protection and the LSA / LSDBA

Enhanced Protection is a form of Tax Protection that protected your pension savings against the Lifetime Allowance prior to 6 April 2024. This will now give you a higher LSA and LSDBA.

If you had an entitlement to tax-free cash of more than £375,000 and more than 25% of the fund on 6 April 2006, you could retain your tax-free cash entitlement. Your maximum tax-free cash entitlement would have been shown as a percentage on your Enhanced Protection certificate.

  • If you hold Enhanced Protection with a protected tax-free lump sum, your protected LSA will still be based on that percentage. However, the percentage is applied to your total benefits value on 5 April 2023.
  • If your Enhanced Protection Certificate does not show a tax-free cash percentage, your LSA will be £375,000.
  • The LSDBA with Enhanced Protection will be the value of your uncrystallised funds as at 6 April 2024

Fixed Protection 2012 / 2014 / 2016 and the LSA / LSDBA

If you have any of these forms of Tax Protection, the normal limit used to calculate your Lump Sum Allowance and your Lump Sum and Death Benefit Allowance will be replaced by a greater amount than the standard Lump Sum Allowance and Lump Sum and Death Benefit Allowance, as follows:

  • Fixed Protection 2012 – LSA £450,000, LSDBA £1,800,000
  • Fixed Protection 2014 – LSA £375,000, LSDBA £1,500,000
  • Fixed Protection 2016 – LSA £312,500, LSDBA £1,250,000

Individual Protection 2014 / Individual Protection 2016

These forms of Tax Protection were originally introduced in relation to the LTA but continue to apply post 6 April 2024 in relation to the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance.

Individual Protection 2014

  • LSA is 25% of the protected amount on certificate
  • LSDBA is the lower of £1.5million and policy value at 5/4/2014

Individual Protection 2016

  • LSA is 25% of the protected amount on certificate
  • LSDBA is the lower of £1.25million and policy value at 5/4/2016

* These new limits were introduced in the Finance Act 2024. We may need to make changes to the above from time to time and as necessary in accordance with applicable law. You should check this page regularly to take notice of any changes we make.

For further information about the various pension allowances, please speak to your financial adviser or to us.
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