From April 2024 the way pension benefits are tested when they come into payment has changed. Prior to this date individuals were able to save pension benefits up to the ‘lifetime allowance’ (which was the maximum amount of pension benefits that could be saved without incurring a tax charge).
The lifetime allowance was abolished on 6 April 2024.
Following the abolition of the lifetime allowance, the government introduced two new allowances. Those are:
- the lump sum allowance; and
- the lump sum and death benefit allowance.
The lump sum allowance (which, as at March 2025, is set at £268, 275), represents the maximum amount of certain tax-free lump sums an individual can take from all of their pension benefits tax-free over their lifetime. Any amount of lump sum above this limit is taxed at the individual’s normal rate of income tax.
The lump sum and death benefit allowance (which, as at March 2025, is set at £1,073,100) represents the maximum amount of certain tax-free lump sums, serious ill-health lump sums and other death benefit lump sums that can be paid tax-free.
As you have received a tax-free lump sum from your policy with Canada Life, the figures provided on the P60 confirm the lump sum allowance and lump sum and death benefit allowance that has been used up.
You may need to provide this allowance information to another pension or insurance provider should you wish to take out another policy in your lifetime or claim any additional tax-free cash (as applicable and relevant). Please remember that, if you exceed the lump sum allowance, any excess will be subject to income tax at your marginal rate.
