Pension savings and tax

In last year’s Budget, the government announced some changes to the amount of pension benefits you can build up without having to pay any tax on them. The Lifetime Allowance is being replaced by two new allowances. These allowances remain quite high and so most members of the RMDCP won’t need to take any action.

Since 6 April 2024, tax-free cash sums have been measured against two allowances when they are paid:

• The Lump Sum Allowance (LSA) applies to the amount of tax-free cash you can take from your RMDCP (or other pension scheme) benefits. The maximum amount is £268,275.
• The Lump Sum and Death Benefit Allowance (LSDBA) applies to tax-free cash covered by the LSA (above), plus additional tax-free cash amounts payable in circumstances such as death or serious ill health retirement. The maximum amount is £1,073,100 across all pension schemes.

When benefits are paid to you at retirement, or to someone else after your death (such as a spouse or dependant), Scottish Widows will send a certificate to show how much of the two allowances have been used up by the payments. If you have other pension benefits, you should get certificates from them too. Keep them safe as you may be asked to show them as evidence of how much available tax-free cash you have left.

This video gives a little more detail about the changes. If you think you might be affected by the changes, please consider talking to an Independent Financial Adviser.