Pension Lifetime Allowance Abolished: The LSA and LSDBA Rules for 2026/27

Last reviewed June 2026

Pensions / Allowances

The pension lifetime allowance no longer exists. It was the single ceiling on the total value a pension could reach before an extra tax charge applied, and it was abolished on 6 April 2024. If you have found older guidance warning about breaching a 1,073,100 pound lifetime allowance, that information is out of date. This guide explains what replaced the lifetime allowance, how the new allowances work in 2026/27, and what it means if you took pension benefits or hold a protection from the old regime.

The change matters most to people with larger pensions, who previously faced a lifetime allowance charge of up to 55 percent on amounts above the limit. That charge is gone. In its place are two narrower allowances that cap only the tax-free lump sums a pension can pay, not the overall value of the pot. The shift is genuinely significant, and a good deal of online and printed material has not caught up.

Why the lifetime allowance was abolished

The lifetime allowance was a limit on the total value of pension savings that could be drawn without an additional tax charge. It had been cut repeatedly over the previous decade, from 1.8 million pounds down to 1,073,100 pounds, and was criticised for discouraging senior public-sector workers, including senior doctors, from staying in work because additional pension accrual could trigger a large charge. The charge was removed for the 2023/24 tax year, and the allowance was formally abolished from 6 April 2024 by the Finance Act 2024.

Crucially, abolition did not make all pension lump sums tax free without limit. Parliament replaced the single lifetime allowance with a set of allowances aimed specifically at tax-free amounts, so that the tax-free cash a pension can pay remains capped even though the overall value is not.

The transition was staged. The lifetime allowance charge was first removed for the 2023/24 tax year, so that no charge applied even though the allowance technically still existed, and the allowance itself was then abolished from 6 April 2024 with the new lump sum allowances taking its place. Understanding that two-step history helps explain why some guidance written in 2023 refers to a zero charge rather than to abolition, and why anyone relying on older material should check the current rules.

The two allowances that replaced it

Two main allowances now do the work the lifetime allowance used to do, and they apply to lump sums rather than to the whole pot.

The lump sum allowance (LSA): 268,275 pounds

The lump sum allowance caps the total tax-free cash you can take across all your pensions in your lifetime. It is set at 268,275 pounds, which is 25 percent of the old lifetime allowance of 1,073,100 pounds. You can normally take up to 25 percent of each pension as tax-free cash, but only until the running total of tax-free lump sums reaches the lump sum allowance. Beyond that point, further lump sums are taxed as income. For most savers the practical effect is the same as before: a pot worth up to roughly 1.07 million pounds can still pay 25 percent tax free.

The lump sum and death benefit allowance (LSDBA): 1,073,100 pounds

The lump sum and death benefit allowance is a wider limit of 1,073,100 pounds that covers tax-free lump sums taken in life plus certain tax-free lump sums paid on death, such as a serious ill-health lump sum or tax-free death benefits paid before age 75. Amounts above this allowance are taxed at the recipient's marginal rate. Because it includes death benefits, the LSDBA is the allowance that matters most for estate and legacy planning, and it interacts with the separate Inheritance Tax change arriving in April 2027.

A third allowance, the overseas transfer allowance, also set at 1,073,100 pounds, applies to transfers to qualifying recognised overseas pension schemes and is covered in the QROPS guide. For most UK savers, the lump sum allowance is the one that bites in practice, because it caps tax-free cash.

What the allowances do and do not limit

The single most important point is that these allowances limit tax-free lump sums, not the total value of a pension. You can build a pension worth two million pounds or more without any lifetime allowance charge, because that charge no longer exists. What is capped is the tax-free cash: once your tax-free lump sums across all pensions reach 268,275 pounds, any further cash is taxed as income. The rest of the pot can still be drawn as taxable income or left invested.

This is a meaningful improvement for savers with large pensions who plan to take income rather than maximum lump sums. It also changes the calculus around continuing to contribute: the old fear of breaching the lifetime allowance and triggering a charge on every pound above it has gone, replaced by a simple cap on tax-free cash.

Protections and transitional certificates

People who registered for lifetime allowance protection under the old regime keep the benefit of it. Fixed protection and individual protection, for example, gave a higher personal lifetime allowance, and that now translates into a higher personal lump sum allowance and lump sum and death benefit allowance. If you hold one of these protections, your tax-free cash entitlement is higher than the standard 268,275 pounds, and you should keep the protection reference safe and tell your pension provider about it before taking benefits.

There is also a transitional issue for people who took some pension benefits before 6 April 2024. The standard transitional calculation assumes you used 25 percent of every lifetime allowance amount you crystallised as tax-free cash. If you actually took less tax-free cash than that, the standard calculation can understate your remaining lump sum allowance. A transitional tax-free amount certificate, applied for from a pension scheme with evidence of the lump sums actually taken, can correct this and restore the right remaining allowance. Anyone who took benefits before April 2024 and is approaching further withdrawals should check whether a certificate would help, because it must usually be obtained before taking the next relevant lump sum.

Worked examples

Two simple examples show how the lump sum allowance works in practice.

A pot of 800,000 pounds

A saver with an 800,000 pound defined contribution pension takes the maximum tax-free cash. Twenty-five percent of 800,000 pounds is 200,000 pounds, which is below the lump sum allowance of 268,275 pounds, so the full 200,000 pounds is tax free. The remaining 600,000 pounds stays invested and is taxed as income when drawn. There is no lifetime allowance charge of any kind, because the lifetime allowance no longer exists.

A pot of 1.4 million pounds

A saver with a 1.4 million pound pension would, on a 25 percent basis, be entitled to 350,000 pounds of tax-free cash. The lump sum allowance caps the tax-free element at 268,275 pounds, so only that amount is tax free; the next 81,725 pounds that might once have been taken as cash is instead taxed as income if taken as a lump sum, or can be left in the pension and drawn as taxable income. The remaining pot is unaffected by any lifetime limit. Under the old regime, this saver would have faced a lifetime allowance charge on the value above 1,073,100 pounds; that charge is gone.

Common misconceptions

Because the change is recent, several myths persist. The first is that the lifetime allowance was merely suspended and will return; it was abolished in legislation, not paused. The second is that pension lump sums are now entirely tax free; they are not, because the lump sum allowance still caps tax-free cash at 268,275 pounds. The third is that a large pension now triggers a charge on the whole excess; it does not, because only tax-free lump sums are capped, and the rest is simply taxed as income when drawn, exactly like any other pension income.

A further misunderstanding is to confuse these income tax allowances with the separate Inheritance Tax change. They are different taxes with different rules, and a death benefit can be touched by both. Keeping the two ideas distinct is the key to understanding where a larger pension stands in 2026/27.

How this interacts with the 2027 Inheritance Tax change

The lump sum allowances are about income tax on lump sums. They are separate from the Inheritance Tax change that, from 6 April 2027, brings most unused pension funds and death benefits within the value of the estate for Inheritance Tax. The two can both apply to the same death benefit: the lump sum and death benefit allowance governs whether a death lump sum is paid free of income tax, and from April 2027 the value brought into the estate is also assessed for Inheritance Tax. For larger estates this combination makes planning the order in which pensions and other assets are used, and how beneficiaries are nominated, more important, and is a frequent reason to take regulated advice.

Who needs to act now

Most savers do not need to do anything in response to the abolition of the lifetime allowance, because their tax-free cash will fall well within the 268,275 pound lump sum allowance and their pension will simply be taxed as income when drawn. A few groups should review their position. Anyone with an old lifetime allowance protection should confirm the provider has the protection reference on file, because it raises their tax-free cash entitlement. Anyone who took pension benefits before 6 April 2024 and took less than the maximum tax-free cash should check whether a transitional tax-free amount certificate would restore a higher remaining allowance before they take their next lump sum.

Those with pensions approaching or above 1,073,100 pounds should think about the interaction between the lump sum allowance, the lump sum and death benefit allowance and the 2027 Inheritance Tax change, ideally with a regulated adviser, because the most tax-efficient way to draw and pass on a large pension has changed. And anyone who stopped contributing in the past purely out of fear of breaching the old lifetime allowance may want to reconsider, since that charge has been removed and further contributions no longer risk it, subject to the normal annual allowance rules. As always, confirm current figures on GOV.UK before acting, because allowances can change at fiscal events.

Frequently asked questions

Does the pension lifetime allowance still exist?

No. The lifetime allowance was abolished on 6 April 2024. There is no longer a single limit on the total value a pension can reach before a tax charge. It was replaced by the lump sum allowance of 268,275 pounds and the lump sum and death benefit allowance of 1,073,100 pounds, which cap tax-free lump sums rather than the whole pot.

What replaced the lifetime allowance?

Two main allowances replaced it: the lump sum allowance of 268,275 pounds, which caps total tax-free cash across all your pensions, and the lump sum and death benefit allowance of 1,073,100 pounds, which covers tax-free lump sums in life plus certain tax-free death benefits. An overseas transfer allowance of 1,073,100 pounds also applies to overseas transfers.

Can my pension now grow without any limit?

The value of your pension can grow without a lifetime allowance charge, because that charge no longer exists. However, the tax-free cash you can take is capped at 268,275 pounds by the lump sum allowance, unless you hold a protection that gives a higher amount. Amounts above the allowance are taxed as income.

How much tax-free cash can I take in 2026/27?

You can normally take up to 25 percent of each pension as tax-free cash, until the running total across all your pensions reaches the lump sum allowance of 268,275 pounds. People with old lifetime allowance protections may have a higher tax-free cash entitlement.

I have lifetime allowance protection. Is it still worth anything?

Yes. Protections such as fixed protection and individual protection now give you a higher personal lump sum allowance and lump sum and death benefit allowance than the standard amounts. Keep your protection reference safe and tell your pension provider before you take benefits, because it increases the tax-free cash you can take.

What is a transitional tax-free amount certificate?

It is a certificate from a pension scheme that records the tax-free lump sums you actually took before 6 April 2024. The standard transitional rules assume you took the maximum 25 percent each time. If you took less, a certificate can restore a higher remaining lump sum allowance. It usually has to be obtained before taking your next relevant lump sum.

Will my pension still be taxed when I die?

The lump sum and death benefit allowance governs whether a death lump sum is paid free of income tax, with amounts above it taxed at the recipient's marginal rate. Separately, from 6 April 2027 most unused pension funds will be brought within the estate for Inheritance Tax. Both can apply to the same benefit, so larger estates should review their plans.

Where can I read about the replacement allowances in more detail?

The companion guide on the lifetime allowance replacement covers the lump sum allowance, lump sum and death benefit allowance, overseas transfer allowance and the protections in more depth, with worked examples. It is linked in the related guides below.