FAQs on the Lump Sum Allowance

The Lump Sum Allowance (LSA) is the limit on the total amount of tax-free lump sums that an individual will be able to receive before marginal rate tax applies. The limit is £268,275 but may be higher if you've a former Lifetime Allowance (LTA) protection.

The Lump Sum and Death Benefit Allowance (LSDBA) is the limit on the total amount of lump sums and lump sum death benefits that may be paid in respect of an individual before they or their beneficiaries are required to pay income tax on the excess. Note that in some circumstances income tax may still be payable on the whole of the lump sum even where the LSDBA is available.

The current LSDBA standard limit is £1,073,100, but it may be higher if you've a former Lifetime Allowance (LTA) protection.

Each time you take a relevant tax-free lump sum from your pension benefits, you’ll use up some of your LSA and your LSDBA.

The Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) applies to relevant lump sum benefits taken on or after 6 April 2024.

The Lifetime Allowance (LTA) applied to any relevant benefits taken from pension schemes before 6 April 2024, including the value of both lump sum and pension/compensation income.

The Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA) replaces the Lifetime Allowance (LTA) from 6 April 2024. After this date, it's only when you take tax-free lump sums that there's a test against your LSA and LSDBA.

Here’s how to generally work out how close you are to the LSA:

25% of the amount of Lifetime Allowance (LTA) you have used for any benefits taken before 6 April 2024.
25% of the amount of any benefits transferred overseas to a  Qualifying Recognised Overseas Pension Scheme (ROPS) before 6 April 2024.

Plus

The value of any benefits paid as a tax-free cash sum from 6 April 2024. E.g. a  Pension Commencement Lump Sum (PCLS)

or

The tax-free element of an Uncrystallised Funds Pension Lump Sum (UFPLS). The tax-free element of any drawdown payments, including flexi-access drawdown.

or

Standalone Lump Sum (SALS).

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275. This is known as the Lump Sum Allowance (LSA). If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take.

Due to the removal of the Lifetime Allowance (LTA) any annual statements produced from 6 April 2024 would need to be in relation to the new HM Revenue & Customs Lump Sum Allowance (LSA) or Lump Sum and Death Benefit Allowance (LSDBA) and not the Lifetime Allowance (LTA).

For most people, the LSA and the LSDBA used amount shown in your P60 will be the same and will be shown as one figure. Where your LSA used amount and LSDBA used amount is different, you'll be contacted separately.

Broadly we would expect the LSA and LSDBA amount to be the same as the tax-free lump sum taken in most cases. If the actual amount of tax free lump sum taken at retirement was less than the maximum amount quoted, or no tax free lump sum was taken, then the amounts will be different.

If you used 100% of your LTA prior to the 6 April 2024, you'll have no available LSA or LSDBA.

HM Revenue & Customs confirmed the standard process is to convert the total Lifetime Allowance (LTA) percentage used into a monetary figure and 25% of this amount would represent the individual's Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) used. However, a different percentage may be used to calculate the LSDBA where certain conditions are met (e.g. we're aware you've received a serious ill-health lump sum before age 75).

Where your LSA and LSDBA are different amounts, you'll be notified of those amounts separately.

Yes, if we 've been notified of your HRMC Protection. If you believe this not to be true, please send us a copy of your protection certificate or the details of your protection to review.

This is because HM Revenue & Customs' standard method assumes 25% of your LTA used has been taken as a tax free lump sum, even if you didn’t take a lump sum. However, a different percentage may be used to calculate the LSDBA where certain conditions are met (e.g. we're aware you have received a serious ill-health lump sum before age 75).

Where your LSA and LSDBA are different amounts, you’ll be notified of those amounts separately.

No, we have to report on HM Revenue & Custom’s standard method unless you have a form of HM Revenue & Customs Protection or a Transitional Tax Free Amount Certificate (TTFAC).

You can apply for a Transitional Tax-Free Amount Certificate (TTFAC) if you haven’t taken any lump sums from your pension savings since 6 April 2024.

You can apply to any of your pension schemes for a TTFAC Amount Certificate to take account of the actual lump sums you’ve received.

If you took pension benefits before 6 April 2006, but you didn’t take any benefits resulting in a benefit crystallisation event between 6 April 2006 and 6 April 2024, you’ll be unable to apply for TTFAC.

The Transitional Tax Free Amount Certificate (TTFAC) takes into account all of the lump sums you’ve taken across all your pension arrangements up to the date the TTFAC is issued.
Where you've an TTFAC in place, the amount reported in your P60 from the FAS will only show you the tax free lump sum you’ve taken from the FAS (or, your former pension scheme, if you commenced payment of your benefits before your scheme transferred to the FAS). It won’t take account of any other lump sums covered by your TTFAC.

No, the information on the P60 only relates to the benefits that FAS is now responsible for paying. Your annuity provider should provide you with similar information in relation to your annuity payments.

If you took pension benefits from your former scheme before it came to FAS, the previous administrator will have told us how much of the Lifetime Allowance (LTA) those benefits used when they provided the final data. Therefore, if you took pension benefits from your former scheme between 6 April 2006 and 5 April 2024, these have been accounted for in the Lump Sum Allowance (LSA) amount.

If you don't believe this to be the case, please send us a secure message with the details of the benefits you took from your previous scheme and we'll review this.

If either of the following apply, then this is correct:

1. You started your payments from FAS after 6 April 2024 and didn’t take a tax free cash lump sum or
2. If you've a Transitional Tax Free Amount Certificate (TTFAC) which shows you’ve used 0.00 of the LSA and LSDBA, and you've provided this to us. In this case, your LSA and LSDBA used in the FAS are correct and you can use the statement as shown. However, if you've Enhanced Protection (with or without cash protection), Primary Protection (with or without cash protection), or an enhancement factor previously applied to your Lifetime Allowance (LTA), please see the next question.

If you exceed the Lump Sum Allowance (LSA) or the Lump Sum Death Benefit Allowance (LSDBA), any lump sum taken will be taxed at source using an emergency tax code. You may need to contact HM Revenue & Customs regarding any under/overpayment of tax as this will depend on your other income in the tax year it is paid.

If this is the case, then we've provided a statement showing 0.00 whilst we calculate the correct value for you. You shouldn't use this statement to represent your LSA or LSDBA in the meantime. This is the same whether your form of protection includes cash protection or not.

We’ll be writing to you by the end of June 2025 to let you know what the correct figures are.

Due to the updates that have been made for this tax year, your P60s statements, on the member website, for previous tax years will no longer show the percentage you've used against the Lifetime Allowance (LTA). This is still held on our records and we’ll still be able to provide this to you, so if you need this information from us, please send us a secure message.

In addition, for the time being, your Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) used will show 0.00 on P60 statements for previous tax years.

If you've taken less than 25% of your benefits as a tax-free lump sum and haven't taken any benefits from your pension savings since 6 April 2024, you can apply to any of your pension schemes for a Transitional Tax-Free Amount Certificate (TTFAC) to take account of the actual lump sums you have received. The amount stated in the TTFAC will then be used to determine the value of your used LSA.

You would need to consider whether this would be appropriate for your circumstances and we aren't able to advise you on this.

If your benefits commenced payment from your former scheme or from FAS before 6 April 2006, your P60 will show a Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) used amount of 0.00. This is because the lifetime allowance (LTA) wouldn’t have applied to your benefits when they came into payment.

Account will be taken of your pre-6 April 2006 benefits should you access or have accessed further pension benefits from another pension arrangement after 5 April 2006. The way your LSA and LSDBA will be adjusted to reflect this will depend upon when you access or accessed those benefits. Your pension provider should be able to provide you with further information in connection with this.