From 6 April 2024 the Lifetime Allowance (LTA) was abolished and replaced by lump sum allowances.
The LTA was the total amount of pension you could build up from all your pension savings over your lifetime before you had to pay a tax charge.
The lump sum allowances only limit the overall tax-free payment of relevant lump sums, and don’t consider annual pensions.
Types of lump sum limits
The lump sum limits are:
Lump Sum Allowance (LSA)
The LSA is £268,275. This is the amount of tax-free lump sum you can take across all your pensions.
When you retire, you’ll need to provide details to us about the pensions you have taken. We’ll check whether you’re within the LSA limit.
The references to Lifetime Allowance will be changing to reflect the new legislation. In the meantime, if you’re asked to complete our ‘Declaration of other pension entitlements’ form, please complete this form in full.
If you took a pension before 6 April 2024, we’ll work out the deduction from your LSA as 25% of the LTA used.
Lump Sum and Death Benefit Allowance (LSDBA)
The LSDBA is £1,073,100. This is the maximum amount which can be paid from a pension through tax-free lump sum payments, during your lifetime and when you die.
Exceeding the limits
These limits won’t affect most members. However, if you’re a high earner, or have a lot of LGPS membership in terms of the years that you’ve been in the scheme, you might be at risk of exceeding the limits.
If the total of all lump sums paid from UK pension schemes is more than one of these limits, you (or your personal representatives when you die) will have to pay extra tax.
Tax on any excess is charged at your marginal rate.
Transitional Tax-Free Amount Certificate (TTFAC)
A TTFAC details the relevant tax-free lump sums paid to an individual before 6 April 2024.
You may wish to consider applying for a TTFAC if you:
- took a pension before 6 April 2024, and
- took less than 25% of your pension pot as a tax-free lump sum, and
- think that you could be affected by the new lump sum limits
You may wish to seek financial advice before applying for a TTFAC.
In certain circumstances applying for a TTFAC may not be beneficial, for example you have transitional protection which would no longer apply.
If you apply for a TTFAC and are successful, the certificate must be applied by law.
If you already hold a TTFAC, you must provide it to us when you retire.
TTFAC checker tool
HMRC has a self-service tool. You can use it to check if you can apply for a transitional tax-free amount certificate.
Go to the HMRC TTFAC checker tool
Applying for a TTFAC
An application for a TTFAC must be made before taking a pension from 6 April 2024 onwards. It can be made by you or your personal representative (upon death).
HMRC have recommended that an application should be made to either:
- The pension scheme you took most of your pension with before 6 April 2024
- The first pension scheme you take a lump sum from after 6 April 2024
Information on all your pensions taken before 6 April 2024 must be evidenced to the pension scheme you apply to so they can successfully issue a TTFAC.
How to apply for a TTFAC from our Fund
To apply for a TTFAC, you need to submit an enquiry form. On the drop-down menu 'My enquiry relates to', please select the option 'Applying for a transitional tax-free amount certificate'. We will then contact you with further information.
More information
You can find more information on lump sum limits on the national Local Government Pension Scheme member website.