Lifetime Allowance

The Lifetime Allowance is a limit on the amount of money you can save in your pension over your lifetime without facing additional taxes.
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Please Note:
The UK Government have announced that they are removing the Lifetime Allowance entirely, meaning the tax charges will no longer apply from the 2023/24 tax year.

If your pension pot is near the Lifetime Allowance and you want to know more about what these recent changes might mean for you and your retirement plan, please get in touch.

an introduction to the lifetime allowance

The Lifetime Allowance was introduced in 2006 as part of the government's efforts to simplify the pension system and encourage saving for retirement. It is designed to limit the amount of tax relief that can be claimed on pension contributions and to ensure that the tax benefits of pension savings are not being abused by high earners.

What is the Lifetime Allowance?

Current Lifetime Allowance
If the total value of your pension exceeds this limit, you will have to pay additional tax when you withdraw your pension benefits.

The tax rate for exceeding the LTA can be as high as 55% if you take the excess as a lump sum, or 25% if you take it as income.

what does the lifetime allowance apply to?

It's important to note that the Lifetime Allowance applies to all of your pension savings combined, including any personal pensions, workplace pensions and self-invested personal pensions (SIPPs) you may have.

This includes both defined benefit (DB) and defined contribution (DC) pensions.
Defined Contribution Pensions
The value of your pension savings is the total amount you have saved into the pension, plus any investment growth or returns.
Defined Benefit Pensions
The value of your pension savings is calculated as 20 times your annual pension income, plus any tax-free cash you are entitled to.
If you exceed the Lifetime Allowance you will need to report it to HM Revenue & Customs (HMRC) and pay the additional tax. This can be done through your self-assessment tax return, or by contacting HMRC directly.

lifetime allowance exemptions

It's important to note that there are certain protections and exemptions available to some individuals who may be affected by the Lifetime Allowance.

For example, if you had already built up a pension pot of more than £1,073,000 before the Lifetime Allowance was introduced in 2006, you may be eligible for "fixed protection" which can help to preserve your Lifetime Allowance at a higher level.

There are also protections available for individuals who are affected by the reduction in the Lifetime Allowance from £1.25 million to £1.073 million that took place in April 2016.

“they took great care to make sure that i understood everything.”

The Lifetime Allowance can seem daunting, but we can help you.
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M Riley
Client since 2015

what can i do if i'm approaching the limit?

If you think you may be approaching the Lifetime Allowance limit, it's a good idea to seek advice from a financial adviser who can help you plan your pension savings in the most tax-efficient way possible.

This may involve considering other savings vehicles, such as ISAs or other investment products, or looking at alternative retirement income options.

If you're concerned about the Lifetime Allowance, our initial consultations are at our expense, so there's no commitment if you get in touch with us. We can talk you through your options and later present you with a plan for your retirement which factors in any Lifetime Allowance liabilities. To book in your initial consultation, get in touch with us today.
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