Understanding pension allowances and protections

In this section we will cover:

• New allowances that replaced the Lifetime Allowance
• Pension contribution allowances
• Pension protection certificates

In recent years, there have been a lot of changes to pension legislation in the UK. In this FAQ, we'll give you an overview of the current allowances and protections, including the tax-free limits on the amount you can invest in or draw down from your pension. Pension rules, especially those around pension protections, can be complex – it’s important to do your own research and speak to an advisor to confirm if any rules affect you.

What was the Lifetime Allowance (LTA)? 

The LTA was a limit on the total value of pension benefits you could build up in your pensions over your lifetime without paying a tax charge. The figure changed many times, often in line with inflation. The last LTA for 2023/24 was £1,073,100. 

New allowances (as of April 2024)

On 6 April 2024, the LTA was abolished and replaced with three new allowances. The new allowances were introduced for the taxation of lump sums, death benefits and overseas transfers. There are rules on how these new allowances operate and the tax implications, as set out below.

Lump Sum Allowance (LSA)

The LSA is how much money you can receive from your pensions tax-free over your lifetime. Essentially, this caps your tax-free cash entitlement. The LSA is currently £268,275.

This doesn't mean you can take all of your pension pot as a tax-free lump sum if it is worth less than the LSA. For most people, the limit on the tax-free amount you can receive is either 25% of the value of the pension pot you are crystallising (taking money from; an uncrystallised pot is one you’ve yet to draw down from), or £268,275 – whichever is the lower figure. If your cash lump sum is more than the LSA, you will be taxed at your marginal rate on anything above the LSA limit.

Learn more about pension drawdown.  

Lump Sum and Death Benefit Allowance (LSDBA)

The LSDBA is the maximum total amount of certain tax-free lump sums and death benefit lump sums that you or your nominated beneficiaries can receive tax-free. It includes most tax-free lump sums taken from your pensions, before and after your death. For most people, the LSDBA is £1,073,100, and anything in excess of this would generally be subject to income tax. 

There are some conditions that need to be met for this allowance to apply – in many cases, to keep certain death benefits tax-free where death occurs before age 75, payments generally need to be made within two years of the scheme administrator becoming aware of your death. If you are 75 or older, normal income tax rules will apply. If you take any tax-free cash payments from your pension in your lifetime, this would generally reduce your LSDBA. Anything paid to your beneficiaries over the LSDBA will be taxed at their marginal rate of income tax.

Learn more about LSDBA on the gov.uk website. 

Overseas Transfer Allowance (OTA)

If you leave the UK you may decide to transfer your pension with you. The OTA is how much you can transfer to a Qualified Recognised Overseas Pension Scheme (QROPS) and an overseas transfer charge may apply. For most people the OTA is £1,073,100. If the overseas transfer charge applies, it is generally 25% of the amount transferred but depends on your circumstances and any exemptions.

Learn more about the OTA on the gov.uk website.

Pension contribution allowances 

There are also a number of allowances that outline how much money you can contribute to your pension, tax-free: 

Annual Allowance

The Annual Allowance is a figure set by the government each tax year, specifying how much money you can contribute to your pensions without incurring any tax charges. For most people, the Annual Allowance is £60,000 for the 2026/27 tax year. It applies across all the pensions you may have – it is not a ‘per pension' limit.  

This means that if you’re a UK taxpayer under the age of 75, you’re able to get tax relief on personal pension contributions up to 100% of your earnings, or up to the Annual Allowance – whichever is the lower of the two. 

If you’re not working or not earning enough to pay income tax, you can still receive tax relief on contributions up to £3,600 each year (£2,880 of your money and £720 in tax relief). 

Learn more about the Annual Allowance in our pension guides on 'How pension contributions work’, ‘How tax relief on pension contributions works' and our article on 'What is the pension carry-forward rule?'. 

Money Purchase Annual Allowance (MPAA)

The MPAA is a reduced annual allowance. It's applicable if you've already accessed money from your defined contribution pension scheme. A defined contribution scheme is any pension scheme where you and/or your employer contribute to a pot of money that becomes available to you once you retire (rather than a defined benefit pension scheme that guarantees a certain level of retirement income). The MPAA isn't applicable to defined benefit pension schemes. 

The MPAA means: 

• your contributions must be less than (or equal to) the amount you earn; and
• contributions from you and your employer must be less than £10,000.  

You can visit the government website for a full list of pension contribution allowances.

Pension protection certificates

A pension protection certificate is a document usually issued by your pension scheme that confirms you have protected allowances on your pension. You can take different tax-free amounts from your pension pot depending on the type of protected allowances you hold. Despite the LTA charge being abolished, these protections can offer other tax benefits, so could still be relevant to your pension, if in place. It's important to consider any impact paying in to your pension may have on these protections, as some of these protections could be lost if you continue to contribute.  

Pension protection certificates fall into the following categories: 

Fixed Protection

Fixed Protection was originally introduced to protect you from incurring a tax charge if you exceeded your lifetime allowance (LTA). As the LTA has now been abolished, it allows those with Fixed Protection to maintain a higher Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA). 

There are conditions that need to be met in order to qualify for these protections depending on when you applied and if you have continued to contribute to your pension, so make sure you check the specific rules of your pension scheme.

Individual Protection

Individual Protection was originally introduced to protect your personal lifetime allowance from the tax implications of the LTA reductions. Now that the LTA is abolished, it could also help maintain a higher LSA and LSDBA.

Enhanced Protection

Enhanced Protection was introduced to protect pension savings built up before 2006 from the tax implications of the LTA. There was no minimum fund size, so as long as the protection was valid, there was no limit on the size of the fund protected from the tax implications of the LTA. It's also possible to maintain a higher LSA alongside any Enhanced Protection.

Primary Protection

Similar to Enhanced Protection, Primary Protection was introduced to protect pension savings built up before 2006 from the tax implications of the LTA. To be eligible for Primary Protection, your total pension savings at 5 April 2006 must have been valued at more than £1.5 million.

It is possible to hold Primary Protection with or without a protected lump sum. A protected lump sum is the amount of tax-free cash you could take from your pension and is specified on your protection certificate. 

More on pension protection certificates 

Visit the government's website to find a comprehensive breakdown of these pension protections. If you think you should be entitled to any of these protections, reach out to your pension scheme provider for more information.

Other pension protections

Each protection has its own conditions, so make sure you check the specific rules of your pension scheme to see if any of these apply to you. 

Lifetime Allowance Enhancement Factors 

Lifetime Allowance Enhancement Factors allowed individuals to increase their LTA or their LSDBA in certain circumstances. You could apply for these enhancements through HMRC.

You can check on the government’s website if these historic Lifetime Allowance Enhancement Factors still apply to your pension.

Tax-free cash protection

Tax-free cash protection ensures that individuals who had substantial pension savings before the new pension allowances were introduced can access a higher tax-free cash sum. If you have a tax-free cash protection, the amount of tax-free lump sum you can take and your overall tax-free limit may be higher than the LSA (outlined above). This protection is often linked to Primary Protection or Enhanced Protection, which were introduced to safeguard individuals with substantial pension savings from the LTA charge.

Visit the government’s website for more information on tax-free cash protection.

Protected Pension Age (PPA)

The normal minimum pension age is 55 (increasing to 57 from 6 April 2028). If you have a PPA in your pension scheme, you may have the right to claim pension benefits before you reach the minimum pension age. The PPA applies on a scheme-by-scheme basis, so it may not apply to any or all of your pension schemes.

Visit the government’s website for more information on Protected Pension Age.

Understanding your own circumstances

​Pension planning can be complex and everyone’s circumstances are different. These allowances and protections don't apply to everyone, so it's important to check the specific rules of your pension scheme, as making changes to your pension could affect any allowances and protections you do have. You can also check your existing protections on the government website if you're missing any of your pension protection details.

Speak to our experts 

If you have any of these protections on your pension, please contact us so we can update our records. If you have these protections and would like help completing actions relating to your Personal Pension with us, you can book a free call with our team of experts for some guidance. 

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Tax rules vary by individual status and may change. This is general information, not personalised tax advice. Before transferring, check you won't lose any benefits or pay any unexpected charges. During a transfer, your investments will be out of the market. Seek financial advice if you're unsure if a transfer is right for you.