In the biggest act of pensions tax simplification in many years, the Chancellor has today announced that the Lifetime Allowance will be abolished from April 2024 (with the Lifetime Allowance tax charge being removed from April 2023). He also announced an increase in the Annual Allowance from April 2023.

While the abolition of the lifetime allowance should make life easier for employers to retain experienced, highly skilled workers, particularly in the NHS, it creates uncertainty and complexity for many schemes and employers in the short term. Critically, pension providers and trustees also need to ensure that individuals who are preparing to access their benefits imminently are aware of this news, so that they do not face an unnecessary tax charge.

Promoting growth

Changes to pensions taxation (and other pensions-related initiatives) were at the heart of today’s Budget, which is designed to promote economic growth. One of the key challenges the UK economy has faced since the pandemic is the high levels of economic inactivity, with 7 million people of working age (excluding students) not currently working, and a large number of vacancies, with around 1 million jobs currently unfilled.

In response to this, the Chancellor announced several measures which are designed to encourage more people into work and to promote retention, including the plan to abolish the Lifetime Allowance from April 2024. This is seen as necessary to remove a barrier to some experienced, highly skilled workers, particularly in the NHS, remaining in work.

The Chancellor also announced plans to increase the Annual Allowance from 6 April 2023.

The key details on these changes set out in the Budget and a related HMRC policy paper are that:

Lifetime Allowance

  • The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024.
  • The maximum Pension Commencement Lump Sum for those without protections will be retained at 25% of the current LTA (£268,275) and will be frozen thereafter.
  • The taxation of the LTA excess lump sum, serious ill-health lump sum (SIHLS), defined benefits lump sum death benefit (DBLSDB), and uncrystallised funds lump sum death benefit (UFLSDB) will change such that where they are currently subject to a 55% tax charge above the LTA, they will instead be taxed at an individual’s marginal rate.
  • Legislation will be introduced in a future Finance Bill to remove the LTA from pensions tax legislation.

Annual allowance

  • The Annual Allowance will increase from £40,000 to £60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused Annual Allowances from the 3 previous tax years.
  • The Money Purchase Annual Allowance (MPAA) and the minimum Tapered Annual Allowance (TAA) will both be increased to £10,000 from 6 April 2023.
  • The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
  • To increase retention in the public sector, open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges, allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance.


The abolition of the lifetime allowance may have significant implications for some pension schemes and employers. For example:

  • trustees will need to review their scheme’s rules and consider how this will impact their scheme, particularly where benefit accrual is limited by reference to the Lifetime Allowance; and
  • employers will need to review any arrangements they have put in place to mitigate the effect of the Lifetime Allowance (such as top-up arrangements or cash in lieu of pensions for individuals whose benefits exceed the Lifetime Allowance).

In the short-term, trustees and pension providers also need to ensure any individuals who have exceeded the lifetime allowance and who are preparing to access their pension benefits imminently are aware that they may be better waiting until after 6 April 2023.

Employers will also need to consider how the increase in the Annual Allowance, the MPAA and the TAA impact any arrangements they have in place to mitigate the effects of these allowances on their staff.

Other announcements

As well as announcing the headline changes to the lifetime and annual allowance, the Chancellor also announced the following further pensions-related measures:

  • the Government plans to expand and improve the midlife MOT to support individuals with planning for later life across Great Britain;
  • the Chancellor is looking at further steps that can be taken to unlock productive investment from DC schemes and will report back in the Autumn statement. In particular, the Government considers it to be “critical to unlock defined contribution (DC) pension fund investment into the UK’s innovative firms”; and
  • The Government is challenging the LGPS in England and Wales to move further and faster on consolidating assets – a forthcoming consultation will propose LGPS funds transfer all listed assets into their pools by March 2025, and set direction for the future. This may include moving towards a smaller number of pools in excess of £50 billion to optimise benefits of scale. The Government will also consult on requiring LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital, thereby seeking to unlock some of the £364 billion of LGPS assets into long-term productive assets.