What Is the Pension Lifetime Allowance Now? (2025 Update)

The pension lifetime allowance was abolished on 6 April 2024. The previous limit was £1,073,100. You can now save unlimited amounts in pensions without triggering a lifetime allowance charge, but new withdrawal allowances took its place.

What the lifetime allowance was

The lifetime allowance was a cap on how much you could accumulate across all your private pensions before facing a tax charge. It covered workplace pensions, SIPPs, and any other defined contribution or defined benefit pensions — but not the state pension.

If your total pension savings exceeded the limit when you started taking benefits, you paid a lifetime allowance charge: 25% on lump sums taken above the threshold, or 55% if you withdrew the excess as a lump sum instead of income. The charge applied on top of any income tax due.

The allowance started at £1.8 million in 2006, fell to £1 million in 2016, then rose to £1,073,100 by April 2023. It was frozen, reduced, and unfrozen several times, creating uncertainty for savers with large pots or generous final salary schemes.

From April 2023, the charge was removed (though the allowance technically still existed). A year later, the allowance itself was abolished entirely. You no longer need to track your lifetime allowance percentage or apply for protections.

What replaced the lifetime allowance

Two new allowances replaced the lifetime allowance charge from April 2024: the lump sum allowance and the lump sum and death benefit allowance. These control how much you can take tax-free, not how much you can save.

The lump sum allowance is £268,275 (as of April 2024). This is the maximum tax-free cash you can take from your pensions during your lifetime. Most people can take 25% of their pension pot tax-free when they start drawing benefits — this 25% comes out of your lump sum allowance.

The lump sum and death benefit allowance is £1,073,100. This covers tax-free cash taken during your life, plus certain lump sums paid to beneficiaries when you die. If you die before age 75, your beneficiaries can usually inherit your pension tax-free — but only up to this limit. Above it, they pay their marginal income tax rate (or 45% on lump sums).

If you had lifetime allowance protection (such as fixed protection, individual protection, or enhanced protection), you may have higher allowances. For example, if you had individual protection at £1.25 million, your lump sum allowance would be £312,500 (25% of £1.25 million), and your lump sum and death benefit allowance would remain £1.25 million. Check with your pension provider or a regulated adviser if you held protection — it still applies under the new rules.

How this affects your pension savings

You can now save as much as you like in pensions without a lifetime cap. The main limit is the annual allowance — currently £60,000 per tax year (2024/25), including employer contributions and tax relief. If you earn over £260,000, your annual allowance tapers down to a minimum of £10,000.

This change benefits higher earners, NHS consultants with large pensions, and anyone with final salary schemes that were approaching the old £1,073,100 cap. You no longer need to stop contributing or face a 25%-55% charge just because your pot grew through investment returns or employer generosity.

For most auto-enrolled savers, the abolition makes little difference day-to-day. If you are saving through auto-enrolment, your pot is unlikely to reach £268,275 in tax-free cash anytime soon — that would require a total pot of over £1 million (since 25% of £1,073,100 is £268,275).

However, the new allowances do matter if you are consolidating multiple pensions, building up a SIPP alongside a workplace scheme, or moving pensions when you change jobs. Your tax-free cash is now a fixed monetary amount, not a percentage that grows with your pot indefinitely.

Tax-free cash: what you can actually take

Most people can take 25% of their pension pot as a tax-free lump sum from age 55 (rising to 57 from April 2028). Under the new rules, this comes out of your £268,275 lump sum allowance.

If your total pot is £400,000, you can take £100,000 tax-free (25% of £400,000). That uses up £100,000 of your £268,275 allowance, leaving £168,275 for future withdrawals or other pension pots.

If your pot exceeds £1,073,100, you can still take 25% tax-free — but only up to the £268,275 limit. Anything above that is taxed as income. For example, if you have £1.5 million and try to take 25% (£375,000), only £268,275 is tax-free. The remaining £106,725 is added to your income and taxed at your marginal rate.

You do not have to take the full 25% in one go. You can take smaller lump sums using pension commencement lump sums (PCLS) or uncrystallised funds pension lump sums (UFPLS). Each method chips away at your £268,275 allowance. Track what you have taken — HMRC and your provider should keep records, but it is your responsibility to stay within the limit across all your pensions.

What happens when you die

The lump sum and death benefit allowance (£1,073,100) governs how much can pass to your beneficiaries tax-free if you die before age 75. This includes your remaining pension pot, any tax-free cash you had not yet taken, and certain lump sum death benefits.

If you die before 75 and your pension is worth £900,000, your beneficiaries can inherit it tax-free (assuming you have not used up your allowance already). If your pot is £1.2 million, the first £1,073,100 is tax-free; the remaining £126,900 is taxed as income at your beneficiaries' marginal rates if taken as drawdown, or at 45% if taken as a lump sum.

If you die after 75, your beneficiaries pay income tax on anything they withdraw, regardless of the size of the pot. There is no tax-free allowance after 75 — the lump sum and death benefit allowance only applies to deaths before that age.

This makes pension inheritance more predictable than under the old lifetime allowance rules, where a 55% charge could apply to excess lump sums even if you died young. Read more about what happens to your pension when you die for nominating beneficiaries and inheritance tax treatment.

Protections and transitional rules

If you applied for lifetime allowance protection before April 2024, it still matters. The government converted old protections into higher lump sum allowances and lump sum and death benefit allowances.

• Fixed protection 2016 (£1.25 million): lump sum allowance becomes £312,500; lump sum and death benefit allowance stays £1.25 million
• Individual protection 2016 (based on your pot value in 2016, up to £1.25 million): same treatment as fixed protection if your protected amount was above £1,073,100
• Enhanced protection (for pots over £1.8 million in 2006): you keep the right to take 25% of your entire pot tax-free, with no monetary cap

If you had primary protection, your lump sum allowance is 25% of your protected lifetime allowance, and your lump sum and death benefit allowance matches your protected amount. You do not need to reapply — your provider should have records. Double-check your annual benefit statement or log into your pension account to confirm.

Transitional tax-free amount certificates were issued to anyone who had already taken benefits before April 2024. These confirm how much of your lump sum allowance you used under the old rules. If you took £50,000 tax-free in 2022, that £50,000 still counts against your new £268,275 allowance.

Do you still need to track your pension value?

Yes — but for different reasons. You no longer need to worry about breaching a lifetime cap, but you should still know how much you have saved to plan retirement income, avoid breaching the annual allowance, and understand how much tax-free cash remains.

Check your pension statements annually. If you have multiple pots (common if you have changed jobs several times), add them up. You can find lost pensions through the government's Pension Tracing Service on GOV.UK.

If you are approaching retirement and considering whether to combine pensions, compare fees, investment options, and any guaranteed benefits before transferring. A SIPP may offer lower costs and more control, but some workplace schemes offer valuable guarantees or final salary benefits you would lose by moving.

If your total pot is approaching £1 million and you expect to take benefits soon, model how much tax-free cash you will receive under the £268,275 cap. If you have multiple pots, decide which to draw from first — taking tax-free cash from one pot uses up your allowance for all of them.

What this means for you in practice

For most people, the abolition of the lifetime allowance removes a worry rather than creating a new one. If you are building a pension through auto-enrolment or modest personal contributions, you can focus on contributing enough to retire comfortably without worrying about hitting a cap decades away.

If you are a high earner, you can now contribute more without fear of a 55% penalty. The main constraints are the annual allowance (£60,000, or lower if you earn over £260,000) and the money purchase annual allowance (£10,000 if you have already accessed your pension). Check current thresholds on GOV.UK — these figures can change with each Budget.

If you are already retired or about to retire, the new allowances change how you withdraw. You have a fixed £268,275 tax-free pot to manage across your lifetime. Plan lump sum withdrawals carefully — once you use it, you cannot get it back. Consider taking smaller amounts over several years if you do not need a large lump sum immediately, especially if spreading withdrawals keeps you in a lower income tax band.

The abolition also simplifies pension death benefits. Your beneficiaries no longer face a 55% lifetime allowance charge if your pot was large when you died. They pay income tax (or no tax if you die before 75 and stay within the £1,073,100 allowance), making inheritance planning more straightforward.

If you hold lifetime allowance protection, do not assume it is worthless. Check your entitlement — you may have higher allowances that let you take more tax-free cash or pass more to beneficiaries without tax. Contact your provider or a regulated adviser if you are unsure.

Finally, keep records. HMRC expects you to track how much tax-free cash you have taken across all pensions. If you crystallise benefits from multiple pots over several years, maintain a running total. Your providers should report to HMRC, but errors happen — especially if you have old pensions with outdated contact details.

Where to get help

MoneyHelper (backed by government) offers free, impartial guidance on pensions, including how the new allowances work and how to plan withdrawals. You can book a free Pension Wise appointment if you are over 50 and have a defined contribution pension.

If your pension is large or complex — multiple final salary schemes, overseas pensions, or lifetime allowance protections — consider paying for regulated financial advice. An adviser can model tax-free cash strategies, compare drawdown vs annuity options, and help you understand tax on pension withdrawals in your specific situation.

Do not rely on generic online calculators if you have protections or have already taken benefits. The transitional rules are intricate, and a small mistake (such as taking too much tax-free cash in one go) cannot be undone.

Check GOV.UK for the latest allowances, thresholds, and guidance. The government updates pension tax rules regularly — sometimes in the Budget, sometimes through secondary legislation. If you are planning to take benefits in the next year, verify the current figures before making irrevocable decisions.

This is general information, not personalised financial advice. Rules and allowances change — check GOV.UK or speak to a regulated adviser (MoneyHelper offers free, impartial guidance).