The Lifetime Allowance charge was removed on 6 April 2023, and the lifetime allowance will be abolished completely from 6 April 2024.
Subject to any protection in place, there will be a monetary cap on tax-free cash of £268,275 (25% of the previous Lifetime Allowance) or 25% of the value of benefits if this is lower.
The lifetime allowance is the maximum amount an individual can take from all their registered pension schemes without incurring additional tax charges. This does not include the State Pension. A 55% tax charge was applied to amounts above this threshold withdrawn as a lump sum, or 25% if paid as a pension. The lifetime allowance for the 2022/23 tax year was £1,073,100.
If you have a previous defined benefit (final salary) pension, to calculate how much of the lifetime allowance this uses up, you need to multiply the pension by 20 and add any tax-free cash you choose to take. You will then need to add this figure to the combined fund value of any defined contribution pensions you have, to work out how much of the lifetime allowance you have taken up.
You might have the option to apply to protect your benefits from the lifetime allowance, to find out more go to www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance.