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March 2024

Changes Ahead: Lifetime Allowance Scrapped in 2024

Mark your calendars! Starting April 6th, 2024, the UK's pension landscape is undergoing a significant transformation: the lifetime allowance is being eliminated. This pivotal change, announced during the Spring Budget 2023, forms part of the government's strategy to stimulate economic growth and boost labour market participation, particularly among individuals aged 50 and above.

Let's delve into these changes and their potential implications for your financial strategy.

Who Will Feel the Impact?

The abolition of the lifetime allowance (LTA) affects several key groups:

  1. Individual Pension Scheme Members: If you're expecting or currently receiving lump sum payments or death benefits from your pensions, understanding the implications is crucial.
  2. Members of Non-UK Pension Schemes: Transferring funds to a Qualifying Recognised Overseas Pension Scheme (QROPS)? These changes are pertinent to you.
  3. Scheme Administrators: Adapting to new taxation rules, such as the removal of the LTA and alterations to lump sum death benefits and overseas transfers, is essential.

Key Changes to Note:

Let's dissect the major adjustments, focusing on their impact on pension scheme members and administrators.

  1. Abolition of the LTA: The lifetime allowance (LTA), which limits how much you can save in your pension without paying extra tax, will end on April 6th, 2024. This means you can put more money into your pension without worrying about extra taxes.
  2. Freezing of Tax-Free Cash Limit: The amount of tax-free cash you can take out of your pension when you retire will stay the same. It's set at 25% of your pension benefits, up to a maximum of £268,275.
  3. Introduction of New Allowance: There's a new limit called the Lump Sum and Death Benefit Allowance. This is set at £1,073,100 and covers all the money you take out of your pension as a lump sum or death benefit. You won't pay income tax on this money as long as it stays within this limit.
  4. LTA Protections: If you already have protections in place to keep your pension savings under the old lifetime allowance, these will still apply. However, there might be some changes to how they work

Implications for You:

The government's decision to scrap the LTA is a game-changer, especially for those nearing retirement:

Preparing for Change:

With the LTA set to vanish in April 2024, staying informed and prepared is paramount. Understanding these changes is pivotal for effective financial planning in the evolving pension landscape. For businesses and individuals managing pensions, staying updated and ready for the transition is essential.