Lifetime allowance
The lifetime allowance (LTA) for the 2023/24 tax year will remain at to £1,073,100. Normally, the LTA is revalued each year in line with the increase in the CPI, though the Government changed the law earlier this year so that the LTA was ‘frozen’ until at least 5 April 2026.
The LTA is a limit on the amount of pension savings that can be built up in pension schemes without triggering a tax charge when you take your pension.
Annual allowance
Annual allowance (AA) is set by the Treasury and is currently £40,000. The AA is the amount by which the value of your pension savings may increase in any one year without you having to pay an excess tax charge. Your personal AA may be less than £40,000 if your taxable income exceeds HMRC limits or you’ve accessed flexible benefits.
If you exceed the AA in a tax year, you may be subject to a tax charge. However, if you haven’t exceeded the AA in any of the previous three tax years, then you’ll be able to use any unused allowance from that year (known as ‘carry forward’) to offset, or even extinguish, any pension savings in excess of the AA; in many cases, this will result in no tax charge being payable at all!
For more details and examples on calculating LTA or AA, you can read our Tax Controls and Pensions savings factsheet.
We’ve also created a new Pension savings hub which helps you understand what to do if your pension savings in the EAPF have exceeded the standard annual allowance (AA) of £40,000.
Visit our Pension savings hub today!