Pensions Taxation

From 6 April 2024, the pension lifetime allowance (LTA) has been abolished.  The Lifetime Allowance has been replaced with two new allowances:

• The Lump Sum Allowance (LSA)
• The Lump Sum and Death Benefit Allowance (LSDBA)

The LSA limits the total amount of certain tax free lump sums which can be paid to you from all registered pension schemes during your lifetime.

The LSA limit is £268,275.00 (but may be higher if you applied for former Lifetime Allowance (LTA) protections). Each time you take a tax-free lump sum from your benefits or savings, you’ll use up some of your Lump Sum Allowance.

The LSDBA limits the amount of tax-free lump sums that can be taken during your lifetime and paid in respect of you following death before age 75. 

The standard LSDBA is £1,073,100.00 for those without transitional protection or enhancements.

In the LGPS, you can generally take up to 25% of the value of your benefits as a cash lump sum when your pension is first paid to you. Most members will not be affected because the maximum lump sum they can take is much lower than the new limits. If you have built up a large pension in the LGPS or a different scheme, the new limits may affect you.

If you have already been paid a pension or a lump sum from a UK pension scheme, you have already used up some of your lump sum allowance.

If you do exceed the limit, you will have to pay tax at your marginal rate.

Annual Allowance

The annual allowance (AA) is the amount by which the value of your pension benefits may increase in a year without you having to pay a tax charge.

We have prepared a fact sheet which explains how the Annual Allowance works.

More information

More information about pensions taxation, the new lump sum limits and transitional protections, can be found on the National LGPS Scotland website: https://www.scotlgpsmember.org/your-pension/the-essentials/tax/