Life Time Allowance

Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge.

The Lifetime Allowance Limit

The lifetime allowance was introduced in 2006 and reached a level of £1.8 million. Since 2010, there have been a number of pension reforms which have led to the lifetime allowance being continually reduced by HMRC. Its current level in the 2015-16 tax year is £1.25 million and this will now reduce even further to only £1m from April 2016, with an outlook that the limit will further continue to be reduced.

While most people aren’t affected by the lifetime allowance, you should take action if the value of your pension benefits is approaching, or above the lifetime allowance. As pensions are normally a long term commitment, what might appear modest today could exceed the lifetime allowance by the time you want to take your benefits. It may therefore be necessary to take your pension earlier, to stop contributing to the scheme/plan, even though you have not retired - OR to actually transfer your pension funds under HMRC guidelines to a HMRC approved Trustee via a HMRC approved qrops to avoid your benefits exceeding the lifetime allowance and being subject to additional taxation as below.

Current LTA Taxation rates

The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you - the rate is:

• 55% if you get it as a lump sum
• 25% if you get it any other way, eg pension payments or cash withdrawals