How to calculate your Lump Sum Allowance (LSA)
Learn how to calculate your Lump Sum Allowance (LSA) with step-by-step guidance and real examples.
Important information: The ii SIPP is for people who want to make their own decisions when investing for retirement. As investment values can go down as well as up, you may end up with a retirement fund that’s worth less than what you invested. Usually, you won’t be able to withdraw your money until age 55 (57 from 2028). If you’re unsure if a SIPP is right for you, please speak to an authorised financial adviser.
What is the Lump Sum Allowance?
From 6 April 2024, the Lifetime Allowance (LTA) was removed and replaced with new limits on how much tax-free cash you can take from your pension. This new limit is called the Lump Sum Allowance (LSA).
Most people have an LSA of £268,275, which is 25% of the old LTA (£1,073,100).
If you’ve already taken tax-free cash from your pension before 6 April 2024, this reduces your remaining LSA.
Any tax-free cash taken after 6 April 2024 (like through an UFPLS) also counts towards your LSA.
How is the LSA calculated?
You’ll need to:
- Work out how much of your old LTA was used before 6 April 2024 (this will have been shown as a percentage, e.g. 40.55%)
- Multiply that % by 25% of the old LTA (£1,073,100)
- Add any tax-free lump sums taken since 6 April 2024
- Subtract that from £268,275
Example 1: Crystallisation-only before 6 April 2024
Mia crystallised £500,000 of her SIPP in 2015/16, using 40% of her LTA.
She had no transitional protection. She didn’t take any more tax-free cash after 6 April 2024.
Calculation:
LSA reduction = 25% × 40% × £1,073,100 = £107,310
Remaining LSA = £268,275 – £107,310 = £160,965
Example 2: Crystallisation before 6 April 2024 + UFPLS after 6 April 2024
James used 40% of his LTA before April 2024.
After that, he took a £100,000 UFPLS (25% of which was tax-free = £25,000).
Calculation:
Pre-2024 LSA usage = 25% × 40% × £1,073,100 = £107,310
Post-2024 tax-free cash = £25,000
Total LSA used = £107,310 + £25,000 = £132,310
Remaining LSA = £268,275 – £132,310 = £135,965
Example 3: No previous crystallisation, took UFPLS after 6 April 2024
Sam never took any pension benefits before 6 April 2024.
In May 2024, he took a £60,000 UFPLS, of which £15,000 was tax-free.
Calculation:
Pre-2024 LSA usage = £0
Post-2024 LSA usage = £15,000
Remaining LSA = £268,275 – £15,000 = £253,27
Example 4: Full crystallisation before 6 April 2024
Louise used 100% of her LTA before 6 April 2024.
Calculation:
LSA reduction = 25% × 100% × £1,073,100 = £268,275
Remaining LSA = £268,275 – £268,275 = £0
Louise has no LSA remaining and cannot take further tax-free lump sums.
Please note: This information is for general guidance only and depends on your personal circumstances. You must ensure any figures provided (like previous LTA usage) are accurate. If unsure, speak to a financial adviser or check your pension benefit statements.
How can Pension Wise help?
If you’re thinking about retiring soon and want to understand your options, make sure you speak to someone at Pension Wise.
Pension Wise is part of the government’s Money Helper service, offering free and impartial pension guidance to the over-50s. They can also help you decide if transferring your pension is the right choice for you.
