Life After the Lifetime Allowance: What Replaced It (2026)

The Lifetime Allowance (LTA) was a cap on the total pension savings a person could build up before extra tax charges applied. It was scrapped on 6 April 2024. In its place came a system built around two new limits on tax-free money. This article sets out what changed, the figures that apply for 2026, and the allowances that were left untouched.

The headline point is narrow. Removing the LTA did not remove all limits. It replaced a single ceiling on total pension value with two separate caps that focus on tax-free cash, while leaving the annual contribution limits in place.

• The Lifetime Allowance was abolished on 6 April 2024.
• Two replacements apply: the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA).
• The standard LSA is £268,275; the standard LSDBA is £1,073,100.
• The annual allowance (£60,000) and money purchase annual allowance (£10,000) still apply.
• From 6 April 2027 unused pension funds are due to fall within inheritance tax.

What the Lifetime Allowance was

Before April 2024 the LTA set a ceiling on the value of pension benefits a person could accrue across all their schemes. When benefits were taken, or at age 75, they were tested against this ceiling. Anything above it triggered a separate tax charge. The standard LTA stood at £1,073,100 in its final years. The 2024 reform ended that test entirely, so the value of a pension pot is no longer measured against an overall lifetime cap.

The Lump Sum Allowance (LSA)

The Lump Sum Allowance limits the total tax-free cash a person can take from their pensions during their lifetime. The standard figure is £268,275, which is 25% of the old LTA. Most people taking a tax-free lump sum, often called a pension commencement lump sum, draw it within this cap. Amounts taken above the LSA are taxed at the individual's marginal rate of income tax. People who held certain LTA protections before the change may have a higher personal LSA.

The Lump Sum and Death Benefit Allowance (LSDBA)

The LSDBA is a separate cap covering tax-free lump sums paid both in life and on death. The standard figure is £1,073,100. It captures the tax-free lump sums counted under the LSA plus certain lump sum death benefits and serious ill-health lump sums. Where a death benefit is paid as a lump sum and the LSDBA is exceeded, the excess is taxed at the recipient's marginal income tax rate. Income tax can also apply to lump sum death benefits where the member died at age 75 or over, separately from these allowance tests.

The limits that did not change

The contribution limits continued to operate as before. The annual allowance caps the amount that can be paid into pensions each tax year with tax relief, set at £60,000 for 2025/26, subject to tapering for higher earners and to available carry forward. The money purchase annual allowance, which applies once someone has flexibly accessed a defined contribution pension, remains £10,000. These rules are unaffected by the abolition of the LTA and still govern how much can go in.

What is changing from April 2027

A further change is scheduled but separate from the 2024 reform. From 6 April 2027, most unused pension funds and certain pension death benefits are due to be brought within the value of a person's estate for inheritance tax. That is an estate-level charge and sits alongside, rather than within, the LSA and LSDBA framework. The lump sum allowances govern income-tax treatment of tax-free cash, while the 2027 measure concerns inheritance tax on what remains in the pot. Anyone affected will potentially face both sets of rules.

Allowance figures and protection rules can change at fiscal events, and individual entitlements vary. Confirm the current position before relying on any number here.

This article is for general information only and does not constitute financial, tax or regulatory advice. Kaeltripton.com is not authorised or regulated by the FCA. Pension and tax rules differ by country of residence and change over time. Verify any figure with official sources such as GOV.UK, HMRC or the FCA, and take advice from a suitably authorised adviser in your country of residence before acting.

FAQ

When was the Lifetime Allowance abolished?

The Lifetime Allowance was abolished on 6 April 2024 and replaced by the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance.

What is the Lump Sum Allowance for 2026?

The standard Lump Sum Allowance is £268,275. It caps the total tax-free cash a person can take from their pensions in their lifetime, with higher figures possible for those holding certain LTA protections.

What is the Lump Sum and Death Benefit Allowance?

The LSDBA has a standard figure of £1,073,100. It covers tax-free lump sums paid in life and certain lump sum death benefits, with amounts above it taxed at the recipient's marginal income tax rate.

Do the annual allowance and MPAA still apply?

Yes. The annual allowance is £60,000 for 2025/26, subject to tapering and carry forward, and the money purchase annual allowance is £10,000. Neither was removed by the LTA abolition.

Are pensions affected by inheritance tax?

From 6 April 2027, most unused pension funds and certain death benefits are scheduled to be included in the estate for inheritance tax. This is separate from the lump sum allowances and may apply in addition to any income tax.