mars 21 2024

United Kingdom: The Abolition of the Lifetime Allowance - What Employers Need to Know


At A Glance

  • On 6 April 2024, the lifetime allowance (LTA) will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced.
  • The regime will create a new “lump sum allowance” of £268,275 and a new “lump sum and death benefit allowance” of £1,073,000.
  • UK companies, and multinational companies with UK operations, should consider whether to make any changes to their pension arrangements in light of these changes.

What is happening?

From 6 April 2024, the LTA will be abolished and a new regime for the taxation of lump sums and lump sum death benefits will be introduced. This is the most significant change to the UK pensions tax regime for nearly two decades, and has implications for both UK companies and multinational companies with UK operations.

What is the LTA?

As a reminder, the LTA is the maximum amount of tax-relieved pension savings that an individual can make over their lifetime. When originally introduced in 2006, the LTA was set at £1.5 million — it is currently £1.073 million. When first introduced, and each subsequent time it was reduced, individuals with savings in excess of the LTA (or the reduced LTA, as applicable) were able to apply to retain a higher, “protected” LTA. In some cases (known as enhanced and fixed protection), the individual would lose their LTA protection if they made further pension savings. The LTA charge is payable when benefits—whose value exceeds the LTA—are taken, and is payable on the value in excess of the LTA. Until 6 April 2023, the LTA charge was 55% where the excess was taken as a lump sum, and 25% where the excess was taken as pension. However, starting 6 April 2023, the LTA charge was reduced to the individual’s marginal tax rate, as a precursor to abolition of the LTA.

What will replace the LTA?

On 6 April 2024, a new “lump sum allowance” of £268,275 (i.e., 25% of the current LTA) and a new “lump sum and death benefit allowance” of £1,073,000 (i.e., the current LTA) will be created. Individuals will not pay tax where the non-taxable element of lump sums they receive does not take them above these levels. To the extent that the otherwise non-taxable element of a lump sum exceeds these levels, it will be taxed at the recipient’s marginal rate (except where LTA protections apply). The allowances will be personal, rather than applying at a scheme level, and will not take into consideration the payment of regular pension income.

Existing LTA protections will remain relevant, as they will give the individual higher lump sum and lump sum and death benefit allowances. Since 6 April 2023, individuals with enhanced or fixed protection will not lose that protection if they make further pension savings, provided they applied for the protection before 15 March 2023.

What should employers do?

Employers should consider whether to make any changes to the rules of their occupational pension scheme in light of the changes. For example, scheme rules may provide for benefit accrual to be capped, to prevent members exceeding the LTA. Some employers may wish to remove such provisions to enable members to benefit from the abolition of the LTA. Equally, others may wish to ensure that the abolition of the LTA does not cause those provisions to fall away, if this would have a significant impact on the scheme’s liabilities. Any changes to scheme rules will require trustee consent, unless the rules give the employer a unilateral amendment power. Employers should also consider whether they wish to modify any arrangements that they have put in place for employees who have ceased benefit accrual, or limited the extent of their benefit accrual, to avoid breaching the LTA or to avoid losing a form of LTA protection. Lastly, it will be necessary for employers to update any employee communications which refer to the LTA.


We examine a range of topical issues: affirmative action in nine jurisdictions, navigating AI in the workplace and recruitment, the new equal pay law in Brazil, the rise of lifetime income products in CITs in the United States, the abolition of the lifetime allowance in the United Kingdom and updates in the H-1B visa lottery in the United States. We also highlight key recent global employment, benefits and mobility updates, in case you missed them.
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