Lifetime allowance
If your pension savings are worth more than £1 million you may need to protect your pension savings from the lifetime allowance tax charge.
The lifetime allowance
The Lifetime Allowance is the amount of savings you can take from your pension schemes without facing a tax charge.
The Lifetime Allowance limit is frozen and will remain at £1,073,100 until the end of the 2025/26 tax year.
The LTA in previous years is as follows:
2020/2021 £1,073,100
2019/2020 £1,055,000
2018/2019 £1,030,000
2017/2018 £1,000,000
Lifetime Allowance factsheet
Lifetime Allowance video - A short video has also been produced by the LGPS to further explain Lifetime Allowance.
Lifetime allowance tax charge
The lifetime allowance tax charge is:
- 55% of any amount you take from your pension savings as a lump sum that is over the lifetime allowance
- 25% of any amount you take from your pension savings as pension income that is over the lifetime allowance
Value of your combined pension funds
The lifetime allowance applies to the value of your combined UK registered pension schemes and some overseas schemes. Your pension scheme administrator(s) may already send you information that will help you to find out the value of your combined pension savings. If not you should contact your pension scheme administrator(s) for more information.
This information will help you if you need to apply to protect your pension savings from the lifetime allowance tax charge.
Do I need to do anything now?
If you are agreeing salary and pension contribution levels with your employer for next year, increases in contributions to your pension schemes based on higher earnings may mean you exceed the lifetime allowance.
You may need to act to protect yourself from a tax charge even if you are not yet nearing retirement.
If you have existing protection but know that you may lose this you may also need to consider whether to apply for the new protections.
What do I need to do to protect my pension savings?
From April 2016 you will be able to apply to HMRC for one of two new protections when the lifetime allowance is reduced. These will be known as fixed protection 2016 and individual protection 2016.
You will be able to apply for these new protections by using a new on-line self-service system which will be available from July 2016. The new self-service system is still being developed and we will provide you with more information on this in due course.
You can find more information about the reduction of the lifetime allowance in Pension Schemes Newsletters 72 and 73.
Pension schemes newsletter 72 - September 2015 - GOV.UK
Pension schemes newsletter 73 – October 2015 - GOV.UK
Your pension savings may already be protected
The lifetime allowance was introduced in 2006 and was reduced in 2012 and again in 2014.
Each time the lifetime allowance reduced, people who had already planned their pension savings on the basis of the higher lifetime allowance could protect their pension savings by applying to HMRC and should have received a certificate to confirm their protection.
However you may still be subject to the lifetime allowance charge if you lose this protection.
You can find more information about the existing protections and when these may be lost at Tax on your private pension contributions - GOV.UK.