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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Do limits on tax-free cash mean scrapping the lifetime allowance is meaningless?

I’ve heard a lot of people suggesting the lifetime allowance being scrapped is a big giveaway to the wealthy, but why would anyone pay in above £1,073,100 if they can’t build up any more tax-free cash? What am I missing?
Meredith, Somerset
Tom Selby, AJ Bell Head of Retirement Policy, says:
I recently covered the main changes brought about for pensions as a result of chancellor Jeremy Hunt’s Budget.
The biggest and most surprising announcement was the decision to remove the lifetime allowance tax charge from 6 April this year. In 2024/25, the intention is to abolish the lifetime allowance altogether.
As part of that announcement, Hunt confirmed the maximum tax-free cash someone can build up will be limited to £268,275 – a quarter of the current £1,073,100 lifetime allowance.
Anyone who applied for a form of lifetime allowance ‘protection’ before 15 March 2023 which entitles them to more tax-free cash than this amount will be able to keep that entitlement and continue contributing to their retirement pot.
But even where your contributions do not generate additional tax-free cash entitlement, there are plenty of reasons why you would want to keep paying into a pension.
The upfront boost of pension tax relief on your contributions will still be paid, and with the removal of the lifetime allowance tax charge you’ll be able to keep more of your money than before. Income tax will still be due when you withdraw money from your pension, but this will be less than you would have paid with the lifetime allowance tax charge in place.
Furthermore, if you are employed then you should be automatically enrolled into a workplace pension scheme and receive matched contributions from your employer. Under automatic enrolment rules, you must contribute a minimum of 4% of earnings between £6,240 and £50,270, with your employer contributing an additional 3% and a further 1% is added on through pension tax relief. Many employers offer even more generous pension contributions.
Even with a lifetime allowance charge it could make sense to contribute above your lifetime allowance if you benefit from an employer match.
You can also use your pension pot to pass money onto loved ones tax efficiently. In fact, if you die before age 75, your pension can be inherited completely free of any tax, while if you die after 75, it will be taxed in the same way as income when your beneficiary makes a withdrawal.
These rules make pensions one of the most tax-efficient savings vehicles available for inheritance tax purposes. The removal of the lifetime allowance tax charge makes pensions even more attractive for those prioritising death benefits planning.
DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?
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Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.
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