The lifetime allowance was abolished on 6 April 2024. Two allowances replaced it: a lump sum allowance of £268,275 and a lump sum and death benefit allowance of £1,073,100, both unchanged for 2026/27. They cap tax-free lump sums rather than total pension value — a narrower test than the one they replaced, and one that catches death benefits in a way the old regime did not.
What was abolished, and how
It happened in two stages. The lifetime allowance charge went first, and then the allowance itself: Finance Act 2024 section 14 and Schedule 9 omitted sections 214 to 226 of Finance Act 2004, which housed the charge, along with the index entries and the related Schedule 34 provisions. The amendments have effect for 2024-25 and subsequent tax years.
So there is no longer any test against total pension value at retirement. What remains is a test on the tax-free element of lump sums.
The two allowances
The lump sum allowance is £268,275, set by section 637P ITEPA 2003. It is the familiar 25% of the old £1,073,100 allowance, carried across as a cash figure.
The lump sum and death benefit allowance is £1,073,100. Note the citation, because it is commonly given wrongly: the amount is in section 637R, while section 637S deals with its availability. Both figures are confirmed for 2026/27 and neither was touched by the most recent Finance Act.
There is a third, easily forgotten: the overseas transfer allowance, which section 244IB Finance Act 2004 sets as an amount equal to the lump sum and death benefit allowance — so £1,073,100 by reference rather than by its own figure. Transferring value above the available allowance triggers a 25% overseas transfer charge, and on the first transfer on or after 6 April 2024 the allowance is reduced by 100% of any lifetime allowance used before that date.
Which events use which allowance
This is the part that changes planning, because the two allowances are not used up in parallel.
- Using both — a pension commencement lump sum, an uncrystallised funds pension lump sum, and a stand-alone lump sum;
- Using the death benefit allowance only — a serious ill-health lump sum, and relevant lump sum death benefits. That covers any authorised lump sum death benefit other than a charity lump sum death benefit or a trivial commutation lump sum death benefit, and excludes funds already crystallised before 6 April 2024.
The practical consequence: taking tax-free cash in life consumes headroom that would otherwise have sheltered a lump sum death benefit. Someone who takes their full £268,275 has used £268,275 of the £1,073,100 as well.
Exceeding them
Where a lump sum exceeds the available allowance, the excess is taxed as pension income at the recipient's marginal rate. The mechanism is explicit in the legislation: section 637A exempts a pension commencement lump sum from income tax, while section 637B treats a pension commencement excess lump sum as taxable pension income for the year of payment.
There is no separate charge and no flat rate. For a higher-rate taxpayer the excess costs 40%, and it can push income into the personal allowance taper.
One administrative point worth passing to clients: if a member fails to provide the information a scheme administrator needs, the administrator will assume the individual has no lump sum allowance available. Silence is treated as the worst case, not the best.
Pre-April 2024 benefits: the standard calculation
Benefits taken before 6 April 2024 have to be counted against the new allowances, and the default is a deemed calculation rather than a look at what was actually paid.
For the lump sum allowance, it is reduced by 25% of the lifetime allowance previously-used amount. Where that deduction equals or exceeds £268,275, the available allowance is nil.
For the lump sum and death benefit allowance, the reduction is the "appropriate percentage" of the previously-used amount. The default is also 25% — but there is a 100% override where the individual became entitled to a serious ill-health lump sum before 6 April 2024 while under 75, or died before 6 April 2024 under 75. Where the 100% figure applies, the previously-used amount is not apportioned.
The 25% assumption is the crux. It presumes everyone took the maximum tax-free cash available. Anyone who took less than 25% — because they chose a higher pension, or a scheme did not offer full commutation — is penalised by the default.
The transitional certificate
That is what the transitional tax-free amount certificate is for. It certifies the actual lump sum transitional tax-free amount and the lump sum and death benefit transitional tax-free amount, which are then deducted instead of the deemed percentages.
It is worth applying for where the individual took less than 25% of pre-April 2024 crystallised benefits as tax-free cash, and holds complete and accurate records of what was received. Personal representatives can apply for a deceased individual.
The mechanics:
- Who issues it — a certification administrator, meaning the scheme administrator of a registered scheme of which the individual is or was a member, or an insurance company that secured scheme pension or lifetime annuity payments;
- Evidence needed — complete evidence of total lifetime allowance usage: financial records, benefit crystallisation event statements or bank statements, with sufficiency judged case by case;
- Deadlines are event-based, not calendar-based. An application cannot be made after the individual becomes entitled to a relevant lump sum, and cannot be made after the 31 October following the end of the tax year in which a relevant lump sum death benefit is paid;
- Timing — the administrator must determine the application within three months of receipt, and the holder must send copies to other administrators within 90 days of receiving it, and before any relevant crystallisation event.
Read that first deadline carefully. Once a relevant lump sum has been taken, the certificate is no longer available — so it has to be obtained before drawing benefits, not afterwards when the tax charge appears.
Protections still matter
The old protections were not swept away. From 6 April 2024 an individual with a valid protection has their lump sum allowance and lump sum and death benefit allowance protected, raising them above £268,275 and £1,073,100 respectively. Primary, enhanced, fixed 2012, 2014 and 2016, and individual 2014 and 2016 protections all remain live.
Enhanced protection is the most generous: the death benefit allowance becomes the value of the individual's uncrystallised rights at 5 April 2024, and where there is no separate lump sum protection the initial lump sum allowance is £375,000. Individual protection gives its own capped figures, which depend on the relevant amount and should be confirmed scheme by scheme rather than quoted from a table.
Anyone holding a protection who has been told the lifetime allowance no longer exists, and that the protection is therefore irrelevant, has been misinformed.
Acumon advises on pension allowances and retirement planning through private client tax and tax planning work — see also our guide to adjusted income and the annual allowance taper. If you took benefits before April 2024 and took less than the maximum tax-free cash, the transitional certificate has to be obtained before you draw anything further.